You’re ready to buy your first Lexington home!
But before you begin your new home hunt in earnest, it’s helpful to
know exactly what you need for a purchase. Do you have it all, or are you
missing something that could throw a wrench in your dream of owning a Lexington
home?
After all, you can’t just slap down a credit
card to buy a house, particularly if you need a mortgage—your
lender will want to check your financial background to size
up whether you can afford the place you’re eyeing. That means you’ll have
to round up some paperwork as proof.
So here’s a handy checklist of what you’ll need to sail
through this process without a hitch.
Tax returns
To ensure you have the income history to buy a house,
most lenders will ask for two years’ worth of tax returns, two years of W-2s,
or both. This is definitely the case for freelancers and self-employed
borrowers, but full-time employees may be asked for all of this paperwork as
well. Your lender may even retrieve your tax
returns themselves straight from the IRS (with your written
permission, of course), since this cuts down on potential fraud. Still, it’s a
good idea to get those documents in order just in case.
Pay stubs
Tax returns won’t be where your proof of income ends.
You will also need to rustle up copies of your past two months of pay
stubs, according to Martha Witte, vice president of FM Home Loans. If
you’re self-employed or freelancing, things get a bit more complicated.
“Most of the time,
contract employees receive a 1099 and file a Schedule C on their personal
returns. In this instance, we would take a two-year average of the Schedule C
income,” Witte says.
Also be prepared to show a projected balance sheet,
detailing what you’ve earned this year and what you plan to earn in the coming
months.
“It doesn’t need to be fancy, but it should ideally support
that you are on track to have consistent income in the current year, when
compared to other years,” Witte says.
Financial statements
You will also need to show two months of asset
statements—think your checking and savings accounts. This one is a biggie
because your lender will use these statements to prove you have enough money
available to buy a home and then some.
“You will need liquid funds available for the down
payment and to cover closing costs. You will also need reserves after
closing, which means you can’t be left with $0 once you buy the home,” Witte
says. While the reserve amounts vary, two to four months of reserves is enough
for most conventional loans, she says.
Getting a down payment gift?
Finally, if you’re planning on getting a portion of your
down payment as a gift (you lucky dog, you), plan on getting some
documentation from the gift-givers, like copies of their checking or savings
account monthly statements. “We need to also verify the donor’s ability
to give the gift,” Witte says.
When in doubt, follow this simple rule of thumb from
Witte: “Follow the rule of twos,” meaning you’ll need a two-year snapshot of
your income and finances.
Good Luck in your Lexington home search and Happy New Year!
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