First Time Homebuying Starter Kit
Learn everything you need to know how buying a home
- Credit
- Money
- Income
- FAQs
Did you know?
Your Credit Matters
Your credit is a big part of your homebuying criteria. It can determine if you can get a loan, what kind of loan, and what interest rate you get.
There are a few important areas to focus on:
Type of credit
Unsecured debt shows need for money, cannot pay with money from checking or savings. Credit score reduction secured debt natural method for buying an asset would not have adverse affect on credit. Payday loans are an indication of poor money management and would have a negative affect on credit.
Department Store credit cards
Shows need for more unsecured credit. Generally, the higher rate credit cards with very few benefits slight negative to credit.
Major credit cards
Visa, Mastercard, and Discover would all fall into the major credit cards. Some of those could come with single digit interest rates and can show responsible spending if paid off monthly. Even a balance with consisent payments will be a positive on your credit. Balance should remain below 25% of high credit.
Installment loans
Unsecured installment loans will have a negative effect on credit unless the money is used to pay off high rate credit card debt. This move could actually improve your score. Secured installment loans are part of responsible credit picture. A loan tied to an asset with regular monthly payment made will have a positive effect on your credit.
Pay complete balance
On revolving accounts paying the balance monthly shows you are in great financial condition. This would give you some of the high marks on your credit score.
Pay on time monthly
Paying your accounts, which includes mortgage, installments, and revolving, each month on time will always keep your score in a good range. Excess revolving accounts with high balances can hurt your score even when you pay on time.
30 day late
Credit accounts with 30 day lates can really bring your score down. The more recent the 30 day late the more damaging to your score. The number of 30 lates and the time of occurrence will have the biggest effect on your credit.
Bankruptcy, collections, judgements
Bankrupcy, collection and judgements are the most detrimental actions you can take when it comes to credit. You may have good reason but your score goes on data and not reasons. These actions mean you refused to pay the obligation and that is the most damaging to your score.
closed accounts
Closed accounts are okay if there is not a balance. Do not close an account with a balance, it will hurt your score.
Where to get money
There are many ways and places you can get your money to buy your home.
Here are a few:
1. Accounts
The money from any of these accounts can be used to buy your new home.
- Checking
- Savings
- Brokerage with stocks and bonds
- Crypto
- Life insurance
- IRA
- Keogh
- 401k
- CDs
2. Loan secured to an asset
A loan secured to an exceptable asset can be used to purchase your new home. Exceptable assets in CD, Savings, Stocks, Bonds, Crypto, Life Insurance, IRA, Keogh, or 401k. Some other assets that may be acceptable with certain loan types would be cars, art and jewelry. The monthly payment on your new secured loan would be counted in most cases.
3. gift
You can receive a gift from many different sources. Possible gift donors are any relative, some close friends, like girlfriend/boyfriend/partner and employer. These candidates can all give money to you to help buy a home. There is no limit to the amount of the gift.
4. Selling a physical asset
You can sell an asset you own for the source of funds. The sale has to be well documented with the bill of sale, check, or money wire, not cash so proof of receipt of funds is possible. Examples of items would be cars, motorcycles, and jewelry.
5. Employer
Your employer can contribute money towards the purchase of your home. This money would be considered income and would be taxed. There are programs where the employer gives a substantial amount of money and the employee agrees to stay with the company for a certain amount of time. This is generally referred as a “Retention Agreement”.
Base Pay/Wages
Your base pay includes salary, hourly, self-employment or fixed income.
Commission
Commission is compensation that is earned based on performance.
Overtime
Overtime refers to any income earned by working beyond normal hours (usually 40/week).
Bonuses
Any amount of money that is added to wages as a financial reward for good performance.
Your Dream. Our Mission.
Income Types + Calculations
You can use many different sources of income to qualify for a mortgage.
Calculations can be different for the various types. Averages are required on commissions, overtime, and bonuses. Different loan programs allow for different calculations.
- One year average
- Two year average
- Maximum ratios
- New years is not required. At least 30 days.
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Documents Needed
A mortgage application typically requires these documents:
- Tax returns
- Pay stubs/W-2s/other income
- Bank statements and other assets
- Credit reports
- Gift letters
- Identification/photo ID
- Rental history
Digital Lovers
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Mortgage Calculators
Disclaimer
Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.