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October 21, 2020

Hot Financing Hacks for First-Time Home Buyers

If you’re thinking about buying your first house, the thought of getting a mortgage might be more than a little overwhelming. Never fear, the experts at Ernest Homes are here! We’ve put together some great ways to attack that first mortgage experience – successfully!

Check Your Credit

Everyone tells you to do this first…and we’re going to tell you again! Hands down, it’s the best way to start your financing journey. There’s lots of reasons bumps will appear on your credit report, and some of them may not be your responsibility. Mistakes can happen and problems can be uncovered that need attention before you can move forward. And there’s more to your credit score than just a number. Getting more information on understanding your credit score is always a great idea.

Choose a Set Point

It may sound weird, but people tend to place a “set point” in their head of what is reasonable and what is overpriced by the first price we hear when shopping for any item, regardless if it’s large or small. To make your price range as accurate and manageable as you can, find out how much a lender will lend you BEFORE you do any home shopping. Don’t even open a web page or call a realtor before you establish a viable price range point for your new home. Reasonable budget guidelines suggest your total debt should not be more than 36% of your income (before taxes and other deductions). And that includes mortgages, credit cards, student loans, and other debts such as medical payments and car loans. Find this number first and let that be your set point. This way, you won’t have to worry about falling in love with a home than you can’t afford because the first numbers you hear will be ones in your price range.

Line Up Your Paperwork

When it comes to documentation, there’s a lot of paper your lender will require. To keep your process running smoothly, collect it all at the beginning, so you don’t have to stop mid-stream to look up another piece of information. You’ll usually need: 

  • Your driver’s license
  • Your Social Security cards
  • Pay stubs for the previous 30 days
  • Proof of additional income, such as Social Security benefits, child support, or alimony (if applicable)
  • W-2 forms for the previous two years
  • Your tax returns from the last 2 years
  • Your checking and savings accounts statements for the last three months
  • Your retirement funds and other investment statements for the last three months
  • The most recent statements for your credit cards, loans, and other debts
  • A list of all your assets
  • Proof of timely rental payments (if you’re not selling a home)
  • Your credit reports
  • If you received a cash gift to use to make your down payment, your lender may want written proof that it is truly a gift and not a loan

Add to Your Documentation Pile

There may be some situations in your life that may cause your lender to ask for supplemental information. Here’s a good example - if you have been divorced, your lender may require a copy of your divorce decree. Here’s some other reasons why a lender may need additional documentation:

  • If you're self-employed
  • If you or a partner is active-duty military or a Veteran
  • If a good chunk of your income comes from investments  

Make sure you find a “curious” lender who will work with you to identify all the documentation you will need before you launch the process.

Don’t Skip Pre-Approval!

Pre-approval for a mortgage is the best way to be perceived as a serious buyer when you’re looking for a home. During this phase of your financing “hack”, your lender can identify any potential problem areas that may put the brakes on your eventual approval. Refer to our first “hack” - a mistake on your credit report – as an example. While it may seem like putting the cart before the horse to get a pre-approval before you have found the house you want to buy, pre-approval can actually pave the way to financing success. Since you know what you can afford (especially if you’ve used our second “hack” and have established your set point) and you already have a lender who is working with you, potential sellers  will welcome you with open arms!

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