Most everyone has thought to themselves, “I want to buy my own home” at one point or another; whether it be because they want to move out of their parent’s house, are tired of paying their landlord’s mortgage for them, or want to have pride of owning something of their very own. However, just having the idea and wishing for it to come true cannot make it happen.
Luckily, the bulk of what our team does is prequalification for the purchase of a home, and we could help put you on the track to home ownership. We can show you that you might very well be able to buy a house that you didn’t even previously know you could afford.
How do you take the first step?
You might be wondering, “what is the first step I can take to start the journey towards home ownership?” Your first inclination could be to go on Realtor.com or Zillow and start shopping around. This is perfectly acceptable to get an idea for what’s available on the market but the listings on these websites don’t always show the most current information about a property. It could very well be sold and no longer on the market. Another first step some people take is to go speak to a realtor. However, realtors are busy with a plethora of clients, and they want to make sure that you are properly qualified to purchase a home before they spend a great deal of time researching and showing homes. Due to this, a realtor will always ask you for a prequalification letter from a lender.
Therefore, the first step should always be to reach out to a lender like us so we can get you a prequalification letter before you speak with a real estate agent.
What is a prequalification letter?
This is a letter from a lending institution stating that we have done our due diligence and we have established enough information being true and accurate that we can reasonably say that this person is qualified for a loan up to certain amount. This amount varies from person to person based on their individual circumstance and a variety of factors.
What can you do before you speak to a lender?
Ascertain what kind of income you have and how much you make. This is one of the most important factors that lenders consider when prequalifying you for a loan.
Have a copy of your most recent tax return handy. This will give you the ability to answer a lot of a lender’s questions up-front.
Pre-Qualifying a W-2 Employee
W-2 income is very easy to prove.
If you have a full-time job, we can use that job from day one. You can start working there today and apply for a mortgage the next day; all we need to see is one paystub.
If you work part-time you would have to be employed at that job for a period of 2 years because a part time job does not guarantee a certain number of hours, we have to take an average over a 2-year period.
It is always our goal to ensure that all of our prequalifications are as true and accurate as possible. No one likes a nasty surprise, especially us.
Pre-Qualifying a Self-Employed Borrower
Self-employed income tends to be a little trickier than W-2. Many people write off a lot of things as expenses, but they are hurting themselves from a mortgage standpoint because it is impossible to call something an expense and call it income at the same time.
If you are showing a low profit on your tax return because your expenses cancel out too much of your profit, you might not be able to qualify for the house you want since there is not a lot of income to show on paper.
There are programs available for people that are self-employed such as bank statement programs and 1099 programs that are very specific to them and could be very helpful.
How much of a down payment are you able to put down?
There is a big misconception we have been made aware of on several occasions that you need a 20% down payment to qualify for a loan. In most circumstances, this couldn’t be further from the truth.
The minimum down payment that is necessary is 3% of the purchase price of the home. Some people do not want to put down a lower down payment in order to avoid PMI, private mortgage insurance, which is an insurance policy that is an additional portion of the mortgage payment that protects against your default on the loan. If you put less than 20% down on a conventional loan you will have mortgage insurance. However, in a lot of circumstances, having PMI is preferable to putting down 20%. Cash is king and you should consider where your money is best served.
Of course, if you want to put down 20%, you certainly can but for most people 3% down is a lot more attainable. Many people don’t realize that coming up with a down payment can be a lot easier than they thought and can take a lot less.
What is your budget?
Most lenders will ask you- “what is your budget for the cost of the home?” Since it might be difficult for you to know when purchasing your first home what your budget may be, we prefer to ask, “how much are you willing to pay per month?” That way if you tell us that you want your monthly payment to be about $1,200, we can do the reverse math and say you qualify for approximately a $140,000 house.
That covers everything you need to know in the initial stages of purchasing a home. We have had so many people that believed they could not buy a house that we were able to get approved. Now, their dream of owning their house is fulfilled and we can do the same for you.
All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. CrossCountry Mortgage, LLC (“CrossCountry”) does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by CrossCountry.