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Day 1: Homebuying Goals
Day 2: Purchasing Methods
This Week’s Goal: To learn homebuying basics including the various methods of purchasing a home and, if you choose a mortgage, how lenders review your income to determine how much you can afford.
Day 3: Your Capacity
Today’s Easy Financial Task: Answer questions about your capacity to borrow.
How to rock this task:
- Learn more about the capacity element of the 5 C’s of Credit.
- Answer questions about your capacity to borrow.
We’re on to Day 3 of the LRC: Homebuying Edition.
Have you been keeping up with the tasks thus far? If you missed a task, no worries. We have two days at the end of the week for review.
Now — let’s talk about capacity!
Capacity measures your ability to afford a mortgage. More specifically, capacity is if you have enough income and stability to pay off your mortgage in the allotted time, or sooner.
- Stable employment or income.
- Income to cover the mortgage.
- Income to cover your mortgage plus other debts.
- Income to cover home maintenance and other costs of homeownership.
When you have a consistent job, make a stable income, and work in a stable field, you are showing lenders that you can afford the mortgage now and in the future.
Lenders may question gaps in employment, career changes or layoffs while determining your capacity to repay the loan. Having instability, changes in employment or fluctuations in income could show that you may not be able to manage the loan payment.
Documents to Verify Employment and Income
Lenders will request documents from you to review your employment history.
Generally, two years is the magic number. Lenders look at the past two to three years as a reflection of what will likely occur in your professional future.
Full-time income that you get a W-2 for at the end of the year makes your life easy. Part-time income, commissions, and income from self-employment can be considered as well, but the income has to be consistent. Lenders may scrutinize this a bit more than income from a typical 9 to 5. You may be asked to provide tax returns, pay stubs or bank statements to prove your income.
If you’ve been at your job for less than six months, in most cases you will need to submit 30 days of paystubs. If you went through an extended period of unemployment, you need to have been at your current job for at least six months to qualify for a mortgage.
Income from disability and social security income qualify, as well as alimony and child support, as long as you’ll be getting that income for two to three years.
Today’s task is to ask yourself the following preliminary questions:
- Do I have stable employment or income?
- Do I have enough income to comfortably cover a mortgage payment while making other debt payments (i.e. student loans, auto loans, etc.)?
- Do I have enough income to cover home maintenance and other costs of homeownership?
An area to look at to help you answer these questions is your current household cash flow.
Do you have money in emergency savings? Do you have money to spare throughout the month?
If so, you may be ready for a house!
If not, you may want to consider taking a look at your budget.
Need help developing a budget and automating a savings plan? Here's tool to help you! Click the picture to learn more.
Throughout this challenge, we’ll be teaching you how much home you can afford, along with saving and budgeting strategies to help you prepare for and manage a home payment.
When you’re finished answering the questions, you’re done with today’s task!
If you want to share your answers do so in the comments below. Don’t forget to reach out to your accountability partners.
Share what you’ve learned today with your tweeps:Today I learned the employment requirements for homebuying. Day 3: #LiveRicherChallenge Click To Tweet
You can reach out to me here:
Facebook: The Budgetnista
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Want the LIVE RICHER Challenge: Homebuying Edition in book form? You can find it here: LIVE RICHER Challenge: Homebuying Edition.
P.S. If you haven't already... Get your Challenge Freebies from our Live Richer Challenge: Homebuying Edition coauthor, Netiva Heard.
P.S.S Have you saved, printed & posted the LRC: Homebuying Edition Calendar yet? It makes for an awesome checklist. Click on the picture, save & print it today.
P.P.S. Don’t forget to get your free Live Richer Challenge: Homebuying Edition Starter Kit. Download it HERE.