Your lender is a key member of your home buying team. They will be with you every step of the way, cheering you on and offering grounded insight and perspective. They are free for you to talk to and you are not required to use  them if you change your mind or find another lender that you’d prefer to work with.

Talking to a lender is by far the hardest part of the home buying process for most of the people I've worked with. It’s like baring your nether regions to a stranger and requesting their nod of approval. No thank you!
But they are truly here to help. 

My suggestion is to break it down into smaller steps. First start a new file on your desktop called “House” then download and add these documents to it:

– 2 months bank statements
– 2 months paystubs
– 2 years tax returns / W-2’s and 1099’s.

Next reach out to me and I will introduce you to some incredible lenders I trust.

Once the paperwork and loan application have been submitted your lender will reach out to you to discuss your goals and the different financing options available to you.

You can read more about types of loans here.

How much you can afford depends primarily on your debt to income ratio. This is your reliable monthly income minus your credit-line debts (car lease, credit cards, co-signed leases and student loans). Not included in this equation are your variable monthly expenses or your rent since it’s assumed that will now be going towards your mortgage.

If at first you are not approved for the range were hoping for, you still have options. If applying for the loan with a partner you can run the numbers under one person’s name (this is particularly helpful if one person has large student loan debts). Other options are to seek a co-signer or offer a larger down payment.

This mortgage calculator will give you an idea of what you can afford, but remember if you put 20% down you will not need to wrap in taxes on a monthly basis and you will not have to pay for Private Mortgage Insurance.

DEBT
I didn’t realize that a car lease or a large credit card balance could skew my debt to income ratio, essentially eating up a large portion of my finances that could be used to qualify for a more substantial home loan.

My lender looked at our finances and suggested what debts we needed to pay off to qualify for our dream house.

Since I was a freelance photographer with inconsistent income, my lender suggested we apply for a loan under just my partner’s name. I still contributed to the down payment and both of our names are on the title of the house.

It felt weird but now I know many couples who have done this for various reasons, commonly if one person has large student loan debt this option may make sense.

DOWN PAYMENT
I knew that the magic goal percentage for a down payment was 20% but I didn’t know why.

Part of this is because unless you have 20% down you will be required to buy Private Mortgage Insurance which protects the lender – not you – if you default on your loan. And just like health insurance or auto insurance, you don’t get this money back. If you can get to 20%, you are not required to pay PMI. This is the dream!

The big myth is that people buy houses all on their own. When you start talking to friends you will be surprised how many got help! Sometimes from strangers or the seller of the home they were buying.

When we bought our first house we did not have 20% down and the extra money spent on PMI felt like it would push us over the edge. I asked a friend if they would lend us the money, “backed by a second note on the house”, and in turn we would pay them back monthly with interest. Some people receive “gift funds” from family members or employers. Your lender can help to sort / structure this to best suit you and your individual needs. But not everyone has people they can ask for. 

TAXES
Another reason that 20% down is ideal is that once you have 20% equity in your house you do not need to wrap your taxes into your monthly payment. Because of my freelance work it was more feasible to pay our property taxes bi-annually than have an extra $800 folded into our monthly mortgage payment.

 

* Keep in mind – any new lines of credit or large purchases, including co-signing for a family member, may impact your ability to qualify for your new home purchase!