Prepare
Houses Come After Financial Clarity
Before you fall in love with a property, make sure your finances are ready to support the purchase.
Financial readiness is the foundation of a successful home purchase. Knowing exactly where you stand with credit, savings, and lending options prevents surprises and puts you in the strongest possible negotiating position. This module covers what you need to have in place before we start searching.
Financial Readiness Overview
Being financially ready means more than having a down payment. It means understanding your full monthly obligation, knowing your credit profile, having reserves for unexpected costs, and being comfortable with the long-term commitment. I encourage every buyer to have an honest financial conversation before we look at a single listing.
Pre-Approval vs Pre-Qualification
These two terms sound similar but carry very different weight. A pre-qualification is a quick estimate based on self-reported information. A pre-approval involves a full credit check, income verification, and underwriting review. Sellers and listing agents take pre-approvals seriously because they show you have been vetted by a lender. In a competitive market, a pre-approval letter can make or break your offer.
Pre-Qualification
Quick estimate based on self-reported data. No credit pull. Useful for early planning but not strong enough for offers.
Pre-Approval
Full lender review with credit check, income verification, and document review. Required for competitive offers.
Cash to Close Breakdown
The total cash you need at closing goes beyond your down payment. Understanding every line item early prevents last-minute scrambling.
- Down payment: typically 3% to 20% of the purchase price depending on loan type
- Closing costs: lender fees, title insurance, recording fees, and prepaid items usually total 2% to 4%
- Earnest money deposit: typically 1% to 2%, applied toward your purchase at closing
- Home inspection and appraisal fees: paid out of pocket during the transaction
- Reserves: most lenders want to see 2 to 3 months of mortgage payments in savings after closing
Document Preparation Checklist
Having these documents ready will speed up your pre-approval and prevent delays once you are under contract.
- Last two years of W-2s or 1099s
- Last two months of pay stubs
- Last two months of bank statements for all accounts
- Most recent tax returns (two years if self-employed)
- Photo ID (driver license or passport)
- Proof of any additional income or assets
- Gift letter if using gifted funds for down payment
- Bankruptcy or divorce documentation if applicable
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Frequently Asked Questions
It depends on the loan type. Conventional loans can go as low as 3% down, FHA loans require 3.5%, and VA loans offer zero down for eligible veterans. A 20% down payment eliminates private mortgage insurance but is not required. I can connect you with lenders who will explain your specific options.
When you check your own credit it is a soft inquiry and does not affect your score. When a lender pulls your credit for a pre-approval it is a hard inquiry, but multiple mortgage inquiries within a 14 to 45 day window are treated as a single inquiry by scoring models.
Yes. Lenders look at your debt-to-income ratio, not just the existence of student loans. If your payments are manageable relative to your income, student loans will not prevent you from qualifying. A lender can run the numbers and give you a clear picture.
Self-employed buyers can absolutely get a mortgage. The process requires more documentation, typically two years of tax returns and profit-and-loss statements. Some loan programs are designed specifically for self-employed borrowers. Start the conversation with a lender early to understand your options.
Questions? (317) 660-5745 or sheldon@mycarmelrealty.com
Questions? (317) 660-5745 or sheldon@mycarmelrealty.com