ABC's of Buying Florida Real Estate

Getting Ready "Financially" to Buy A Home

    A crucial step to take even before you start searching for a home, especially if this will be your first home, is to develop a clear picture of your financial situation. By understanding your income, expenses and debts, you'll have a much better idea of how much home you can afford and how much you'll need to borrow to finance your purchase.

    Let's first get a couple definitions cleared up. The "mortgagee" is the lender providing the mortgage while the "mortgagor" is the person or persons getting the loan and responsible for repaying it. Also remember that the person or persons names on the mortgage loan documents and those who own the home are two different things. The names on the mortgage (mortgagors) are the people responsible to repay it. The names on the title to the home are the "owners" of the home. While they are frequently the same, they are not necessarily the same. For example if only one of a couple has a good credit rating, it may make sense to get a mortgage in that sole name assuming that person can afford the repayments while the same couple may choose to have the home "owned" by both parties.

    When you first go to apply for a mortgage, or even to just determine how much mortgage you are likely to be approved for, prospective mortgage providers are going to want to verify a number of pieces of information about your financial situation. They're going to need to look at your financial records. If more than one of you plan to buy a home together as joint owners, they will want to see the financial records of each of the prospective buyers. One thing to remember is that whose name is on the mortgage and whose name or names are on the title to the home are two different things. The names on the mortgage are the people responsible to repay it. The names on the title to the home are the "owners" of the home. They are not necessarily the same. So, before you even visit a bank, make sure you'll be able to provide copies of each of the following documents of each of the prospective "mortgagors":

• Paycheck Stubs
  Lenders are most interested in your average income over time, not just this month. They will want to see evidence of your pay from your current employer or, if you are self-employed, some other form of documentation of your actual income. Recognize that steady employment is attractive to lenders, so if you've been hopping from job to job, be prepared to discuss the reasons why.
  
  Do not try to fake your income. You'll see in a few moments why that won't work.
• Bank Statements
  To qualify you for a loan, most lenders will also ask you for copies of your bank statements. Ideally, they'd like to see a steady history of savings, or at the least, that you're not bouncing checks on a regular basis.
• Tax Records
  "Typically," says Connie Bemont, a well-known Sarasota Florida real estate professional, "a lender will want to see documentation of your income for the past 2 years so save copies of your income tax filing forms. This is particularly important if you are self-employed." If you own your own business, lenders generally consider your "net income," as in the amount you paid taxes on, not the gross income of the business or the income you paid taxes on plus some amount you claim, for example as having made in "tips." As far as a lender is concerned, "if you didn't pay taxes on it, you didn't earn it," Connie says.
• Dividends and Investments
  Lenders will usually consider long-term investment dividends, as well as your investment portfolio, when evaluating your income and its sources so have records you've received from your investment adviser available.
• Alimony and Child Support Income
  If you receive steady payments as part of a divorce settlement or for child support, you can also include this information as part of your gross income. Recognize, however, that lenders will want to see a copy of your divorce/court settlement verifying the amount of the payments.
• Your Credit Report
  Every lender will insist on seeing a copy of your credit report as part of the loan application process. That report, which they can access on-line, will list all of your long-term debts, as well as your payment history. In general, one of the costs of your mortgage application will be that you will have to pay pay for that credit report. You, and everyone else who will be applying together for a mortgage should get a copy of your credit report yourself beforehand to check to see that debts you have already paid off have been removed from the report and that the debts displayed are all legitimately your debts.

    A competent real estate buyer's agent like Brian Ward or Dick Plumb can be of substantial help as you begin to determine your readiness to apply for a home mortgage.