What Do You Need To Buy a House?
Your Journey to Homeownership
If you ever thought about becoming a homeowner, you are not the only one. The road to becoming a homeowner is a process; however, it is becoming more and more accessible. So what are the things you need to buy a home? It isn’t as much as you think. You can follow these steps to make sure that you have all the documents you need, as well as being able to get a mortgage pre-approval. You can leave renting behind and begin building your wealth through investing in becoming a homeowner. Here is what you will need to buy a house:
Credit Score
Most first-time homebuyers are worried that their credit score is too low to qualify for a mortgage. In many cases, however, you can qualify with a below-average score. The credit requirements will vary depending on the loan type and the lender, but buyers can qualify with scores as low as 580.
FICO scores fall between 300 to 850, and the national average is 710. Some mortgage programs don’t even have credit score requirements. A lower credit score will not automatically disqualify you from getting a loan. Lower credit scores can look like a risk to lenders, but you could qualify by offsetting this risk in other rates, like having a co-signer or giving a higher down payment.
Income Requirements
There are no set income requirements needed to buy a house, and the income you take home monthly will not be the only determining factor. To buy a home, you will need to give lenders the following:
● Your proof of employment
● Your financial history
● Your monthly income
● Your debts
If you are a salaried employee, then proof of income means you need to show your pay stubs and year-end W-2 statements. If you are self-employed, you will need to show tax returns and evidence of your business. If you have job offer letters but have not started working yet, you will need proof of the job offer signed by every party involved.
As for your financial history, you will need to show lenders a pattern of paying bills mostly on time. Your monthly income and debt will be considered together to create your debt to income ratio. This compares how much you make with how much you spend.
The Consumer Financial Protection Bureau (CFPB) recommends having a ratio under 43 percent. Some lenders could still approve borrowers with a DTI of up to 50 percent or more, depending on the compensating factors.
Low income or student loan debt will not prevent you from getting approved. However, you will need a history of paying bills mostly on time and job-related income reported to the CRA.
Cash Needed to Close
Most people think that you will need a 20 percent down payment to close on a home, but this is not true. A typical down payment for first-time homebuyers is 7 percent, but some programs can help you buy your home with as little as 3 percent or no down payment at all.
