Page 42 - The Latest Homebuying Guide

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Capacity to Repay
Now that your credit improvement is on its way, let us turn to your
Capacity to repay. Lenders want to ensure that you (and your
co-borrower) are working, and you have a stable, dependable
source of income. Here is the important information that they will
need to see:

Employment
Details about your current and previous employment over the last
two years. This includes type of work, type of business and contact
information. If you are self-employed, you must own at least 25%
of the business.

Monthly income & Expenses
Be prepared to provide all information regarding your income.
Gather proof of all your earnings, including gross income, overtime,
bonuses, commissions, dividends, income from rental properties
and all other sources. A good proof of your income is your W-2 for
the last two years, and your most recent pay stub covering a 30-day
period. If you are self-employed then have your personal and
business tax returns for the last two years. It would also be a good
idea to have your business’s financial statements ready as well.

To show your monthly expenses, have figures that represent your
rent or current mortgage, insurance, real estate taxes and other
expenses.

A warning about your reported income and taxes
One of the difficulties that new home buyers face, is proving that
they earn enough to qualify for a loan. Prior to making the decision
to invest in a house, some taxpayers who have income that is not
reported on a W2, try to report the least amount of income. This
reduces their tax liability and increases their refund. Unfortunately,
this equation does not help your cause when purchasing a home.

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