Know your financials first

The first step for home buyers isn't to look for a home yet - but to understand how much home you can afford. This section deals with financing.

Getting a grasp on your income, debt, and savings will help you determine how much home you can afford. It will also help you get approved for a mortgage.


Most people finance the purchase of a home and that means getting a mortgage. A very important step in getting that mortgage can be done immediately: do not make any changes to your financial situation!

Lenders will soon be combing over your financial life and they want to see consistent income and spending habits.


For at least three months before applying for a mortgage (and until closing):

- Do not make any big purchases.

- Don’t make any big in- or out-flows from your accounts.

- Don’t apply for other loans or credit cards.

- Above all, don’t change jobs.


  • Tax returns and W-2’s for the last two years (minimum)
  • Pay stubs from the last 3 months (minimum)
  • Bank statements for the last 3 months, minimum. You don’t want anything embarrassing there. Avoid overdrafts – you’ll have to provide a written explanation for each one.
  • If you have unusual sized in or outflows, you will have to explain it.
  • If someone gives you money (like a family member), you will have to fill out a form explaining it and getting their signature.
  • Statements on student loans.
  • At least 3 months statements of investment accounts. Note if you will be taking money from these accounts for your home.
    (Note: if you are a first-time home buyer, you can take up to $10,000 from your IRA to use for the down payment without an early withdrawal penalty, though you will have to pay tax on any gains)
  • You’ll have to document the monthly payments of your previous residence. If you were renting, usually you will have to show the copies of ONE YEARS’ worth of rent payments.

Start getting your financial documents in order now. Having these in place will help speed up the home buying process.


What can you really afford?