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The Braustin Homes
| Braustin Homes Blog
Arguably one of the most frustrating parts of buying a home is All…The… Paperwork!
If you are anything like me, anytime a stack of papers is set down in front of you, you start to panic and worry that you might miss something…
Well, no need to fear!
We are here to walk you through the process of all that “scary paperwork” so you can sign in confidence!
The first question that probably crosses your mind is: “What price can I afford and how much will interest be?“
Ideally, you would already have a rough estimate in mind but verifying your income will solidify these questions and give you a clearer picture. Verifying how much you make can be a pretty simple process depending on your economic situation.
Items you will need:
And… that’s it!
Now reading that, you are either thinking one of two things: “Wow! How easy!” or “Wow! But what about my other sources of income?”
Here’s the thing, while some people do have income that is straight forward and quickly verified, like above, many people do not, so just know that you are not alone if you must take some extra steps to knock out this income verification.
Let’s dive into different scenarios that could affect your verification process!
Being self-employed or an independent contractor can be awesome, but it does tend to make verifying your income a bit trickier. Honestly, you are seen as a higher risk in the eyes of the bank.
Let’s break down why:
Your taxes are not taken out automatically, which means you most likely owe money come tax season, which we all know isn’t very fun. With that being said, some people try to get around paying as much as they owe in some not-so-nice ways, so unfortunately you must prove you are not one of those people.
While being self-employed or an independent contractor gives you a lot of freedom, it is known that your salary can fluctuate tremendously year-to-year based on the market or your own self-motivation, as opposed to the linear salary raises in jobs with traditional employers.
Because of the two reasons above, the bank will always see a self-employed person as more of a risk than someone who is employed by a company.
So, how can you prove you are a trustworthy, money making person?
Self-Employed income will need to be proven with:
Meaning the bank will only consider reported taxable income and you can’t have been a roofer one year and an accountant the next.
If you report income from Social Security or Disability, the bank will need to verify these with your award letter that is sent out by the Social Security Administration. If you need to request a new award letter, take a look at this link.
To supplement this, the bank might also ask for a history of bank statements. This is also true for pensions, or any other monthly recurring income guaranteed for what may potentially be the duration of the loan.
If you are reporting child-support payments as part of your monthly income, the bank will need to verify an established history of receiving these payments as well as the court directive they originated from.
Unfortunately, though child support requirements are set up, it does not mean they are consistently paid, and a bank will not be able to include that income as reliable if there is not a strong pattern of payments.
Just a few of you will have other forms of income that are “stable, predictable, and likely to continue.” You can also include this type of income when applying for your loan.
This type of income is not very common for people getting a home loan, but if it is regular income, you should include it. Examples of this type of income might include interest income, income from dividends, and anything else that isn’t included in what we already covered.
You will need to show a history of payments and that you still will get these payments in the future (i.e., you still own the stocks that pay dividend).
The process of Verifying Employment is mostly done through the process of verifying income, but banks will also often request a document that is called a Verification of Employment (VoE).
This is just a form filled out by your employer stating that you are indeed still employed with the company you reported on your pre-approval application.
It doesn’t happen very often but sometimes a buyer may lose their job between the pre-approval and loan closing date, this will most certainly throw the loan out of sorts, so it is important to apply for your loan during a stable and reliable stint of employment, both for your own security and the lender’s.
Congrats! You have sent in all your paperwork and shown that your income and employment are valid.
Now comes the part you’ve been waiting for…
What are you able to realistically budget for the loans of your future home?
Let’s break down what is going on in the banks mind based on the information you’re provided.
A LOT goes into determining what you are eligible for. Sometimes the bank can’t accept the full income amount you initially went in with. For example, for the self-employed, without an established two-year history from tax returns, the bank may have to disregard some of your initially stated income. The same may also be true in terms of over-time income, bonuses, and commissions. Or if your child support isn’t consistent, they can’t count it.
Your income isn’t the only thing that is looked at…
The bank will also look at your other monthly expenses such as credit cards, student loans, car payments, as well as insurance.
With this information, however, it is very important to apply to the bank without changing a thing! You never know what they will ask for, accept or decline, or comment on.
Trying to pay off a debt, switch jobs, or even building your credit can negatively impact your evaluation from the lender, so it is best to just be honest.
This will save you from doing unnecessary work, suffering a frustrating setback, or even losing out on your home altogether.
You might have read through this entire article and still have a ton of questions, which is okay!
Our team here at Braustin will be more than happy to help you fill out an application and get it sent over to be reviewed by potential lenders as well as answer any questions or concerns you may have.
A few items to remember going in:
Braustin Pro-Tip: This application will and should ALWAYS be completely free of charge without need for a deposit or prior examination of your credit score.
Remember, it is ultimately the banks decision what they are willing to loan you, so be prepared, honest, cooperative, and don’t be afraid to ask a ton of questions, this is YOUR future home after all!
The Braustin team will be here to help you with everything whenever you are ready. See you soon!
Drop us a message and we'll get back to you with some answers!