Buying a home requires more than good credit.

Buying a home requires upfront leg work…..

In the current market you need more than a good credit score. You must qualify with provable income. Even if you are a W2 employee, banks will request your last two years tax returns.

During previous years all you needed to qualify for a loan was 2 years W2’s and 30 days paycheck stubs. Now banks are asking for 2 years tax returns to determine your income, even if you have a guaranteed salary. After all if you are telling the IRS you make less and are taking more than the standard deduction, how can you claim you make what you do via W2’s and paycheck stubs?

What banks are looking for on the tax return that will ding your income, are write-offs such as unreimbursed employee expenses. When these types of write-offs are on your tax return, get ready to have your income reduced.

It’s kind of like that old saying, “you can’t have your cake and eat it, too…”

These are the type of issues that are taking place even with borrowers that have 800 fico scores and are putting down 20%.

So when you get ready to buy a home make sure you get pre-approved. You may not qualify for the home you thought you could afford. Or let me rephrase that. You don’t have provable income to get the home you actually want.

Provable income affects your (DTI) debt to income ratio. This will be affected by what banks are allowed to use to calculate your income. So a small detail of writing off 20,000 in expenses could mean the difference of a 30% DTI or a 40% DTI. The lower your debt to income the better chances of qualifying for a home loan.

Before jumping in a car with a Realtor, do a little leg work to make sure you actually qualify for the price range you are looking in. To get a mortgage these days takes more than a good credit score and a pulse.

Author: Mike Clover

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