For many young adults, one of the most significant stepping stones to success is the ability to purchase a house.
Although there are indeed circumstances where someone may have enough generational wealth to buy a home for their children outright but most people will have to get a loan from a bank.
Buying your first home can be very similar to having a first child, or getting a large loan for college.
Often, you don’t really have any idea what to expect. There are a lot of unspoken variables, and it’s generally one of the most expensive things you will ever do in your life.
Although there can be many unforeseen obstacles when it comes to purchasing your first home, there are also several steps you can follow to help secure your first loan with ease.
With today’s economy, and following the housing market’s collapse in 2008 securing a mortgage has many more steps than it did before.
You can expect it to be a lengthy process that will require lots of different information from you so having some knowledge beforehand will help.
Prove Your Income
The first thing you will be asked when applying for a loan will be how you intended to prove your income.
Regardless of how much you make in your day-to-day job, what you can prove as income ultimately comes down to the final number you report to the IRS.
There is a difference in how you file as well.
If you have a W-2 job you only need to have about 2 months of pay stubs to prove you have a consistent income.
If you have a 1099 or LLC however you will have to provide 2 years of tax returns to even be able to apply for a home loan.
What you take as deductions subtracts from your reported take-home pay, and it can get complicated quickly when trying to prove your income. When you’re preparing to apply for a mortgage use these guidelines as a way to set your expectations.
How Much Do You Report Making
Since the way the current tax system is set up in a way that you are trying to reduce your final take-home pay with deductions, what you actually make vs what you report will always be different.
Add in child tax credits, commuting, and office supplies and you can save yourself quite a bit when it comes to what you may owe the IRS.
However, this can ultimately work against you if you are trying to secure a home loan. The more you deduct year over year the less you make on paper, which is the number that matters to mortgage lenders.
If you are planning to make a home purchase in the coming months or years, one thing you can do is consider taking fewer deductions and paying a little bit more in taxes so that you can secure a large enough loan to afford the house you want if your finances allow you to.
Identify what kind of loan do you need:
While most first-time purchases will not be overly extravagant, knowing what kind of loan you are going for will help.
Although most banks won’t sign loans that are over a million dollars to a new home buyer without substantial vetting of income, there are two different kinds of loans you should be aware of.
For a standard first-time buyer, you will likely get a conventional loan. Although, some first-time homebuyers may be looking at a jumbo loan.
Each has there different drawbacks separated by overall volume as well as the interest rate and down payment needed.
There are government-assisted loans such as G.I. home loans for disability and rental and development.
Regardless of what you decide to pursue making sure you are within your means and have a fixed interest rate should be a top priority.
Make sure you know what kind of a loan you are getting so you do not end up getting foreclosed out of a house you couldn’t afford.
While it can be a tedious and daunting experience trying to acquire your first home loan, the reward at the end of that climb is well worth it.
If you are working with the right lender who has your best interest in mind and your ducks in a row, you can set yourself up for a ton of success in homeownership.
There are always risks in life that you need to take to get to the next level.
While jumping into a new situation without much preparation can hinder your journey, sometimes knowing or having a slight inclination as to what you may expect can help you make a road map to success.