Do You Have Everything You Need To Buy A House

Dated: September 28 2016

Views: 420

What you need to buy a house

Riverlim/iStock


You’ve been drooling over local listings and saving every penny for a down payment. You’re ready. 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 home?


After all, you can’t just slap down a credit card to buy a house, particularly if you need amortgage—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’sability 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.

By Angela Colley at Realtor.com

Blog author image

Mark Ross

For Mark Ross, founder of Ross NW Real Estate and professional real estate broker, real estate has always been the career of choice. During his 25+ years in the industry, Mark has gained experience in....

Latest Blog Posts

The Housing Market Is Hot But Not In A Bubble

Existing home sales came in at a whopping 6,850,000, beating estimates with the highest print since 2006. Days on market fell from 36 days to 21 days on a year-over-year basis. Cash buyers remain at

Read More

10 Ways To Enjoy Your Outdoor Living Space All Year

Some believe that the end of summer also marks the final days of enjoying outdoor barbecues, parties, and casual get-togethers. Yet, just by adding a few design elements to your outdoor space, you

Read More

3 Ways To Tap Your Home Equity And Which One Is Right For You

You need to come up with some cash, fast. Maybe you have a leaky roof that desperately needs fixing or you need help paying for your kid's first semester of college. But where do you turn?If you're

Read More

These Pandemic Related Housing And Design Trends Are Not Going Away

Home trends come and go, but social distancing and staying at home have ushered in a new way of life—and some of those changes have spurred home trends that are likely to stick around well past

Read More