Selling Sunset is back. And it has us in our feels about not being able to afford a house.
Unless you work at The Oppenheim Group…
@JasonOppenheim, if you ever need a new protégé ☎️
Or should we ask your bestie Chrishell?
Anyways, the general consensus is that:
It will NOT be as easy for us to buy a house as it was for our parents.
☝️Money, inflation, and the housing market…
✌️Do we even know how to buy a house?
So what it’s going to come down to is planning ahead.
And we get it…
You’re probs thinking “I am nowhere near ready to buy a house.”
(Don’t worry me either.)
But it’s never too early to start learning about the process and making sure you have the right things for when you are ready. And one day you will be ready.
So we’re pulling together a list of everything you need BEFORE buying a house.
1. Proof of income and employment
To be approved for a mortgage, you will need 2 years of steady income and employment.
That’s because a mortgage is for a really long-time.
Like 20 to 30 years.
Are you even 30 LOL?
So mortgage lenders want to make sure that you have a history of steady income and employment, so you’ll be less of a risk for them in the long run.
Now, we know everyone’s job situation is different—whether you freelance, work part-time, or full-time—so it’s important that you research what kind of documentation you’ll need to provide for your type of employment.
The majority of mortgage lenders will ask you for:
- W-2 wage statements from the last 2 years
- Recent pay stubs
- Proof of any other income
- 2 most recent tax returns
And for our freelancing freedom lovers, keep every single payment document possible.
Since you won’t be able to submit a W-2 wage statement, your 2 most recent tax returns will have to show your annual salary.
So please be careful of those deductibles.
2. Good credit
Want people to trust you with money? Let’s say for a mortgage?
Then you gotta get good credit.
Most mortgage lenders require a credit score of 620 or higher. And the higher your credit score, the lower your interest rate will be.
A score of 620 could get you an interest rate of 6.6%, whereas a score of 720 could get you an even lower interest rate at 5.8%.
That basically means thousands and thousands of dollars in savings at the end of your mortgage term.
On top of all that, the higher your credit score is, the more likely you’ll also get approved for a lower down payment. 💅
So if you’re not quite ready to buy a house and you don’t have the best credit… Then this is the perfect time to start building credit, so it’s ready and healthy when you need it.
If you need help building credit, check out our Cleo Builder Subscription. It's an easy and risk-free way to help you build credit and get you ready for mortgage season.
3. Debt details
Mortgage lenders like to look at your existing debt to determine what you can actually afford.
That means they factor in your student loan payments, car payments, and any other debt payments you may have.
That’s why they always say: don’t buy a brand new luxury car before buying a house.
Those expensive monthly payments for your brand new Range Rover will impact your mortgage.
So remember to get the Range after you buy the house.
*Said as I sit in my rented apartment with no car or driver's license.*
4. Down Payment
This will probably be the most amount of money you’ll ever spend in your life—it’s your actual house.
The down payment is a percentage of the price of the house. This is the part you actually pay, while your mortgage lender covers the rest (which you, unfortunately, have to pay back.)
The larger your down payment, the lower your monthly mortgage payments will be.
If you’re buying a house worth $400,000. And you put a down 20% down payment… so $80,000. Your monthly mortgage payment for the next 20 years will be about $3,000.
Now this all varies based on your state, credit score, loan term, and interest rate. But this is a good general idea.
Now let’s say for that same example, we put down a 5% down payment instead... so $20,000. Your monthly mortgage payment for the next 20 years will be $3,600.
Now obviously saving up 20% down payment is a lot. So 5% may be more your vibe.
Just remember that mortgage lenders prefer if you put a larger down payment, so it can help get you lower interest rates and fees.
In the end the larger the down payment the better it is for you in the long run.
5. Cash for closing costs
This is by far the most annoying thing out of them all.
If getting your 20% down payment for a house wasn’t hard enough, now you have to think about closing costs.
What the actual F.
Closing costs are the fees and expenses you pay when you finalize purchasing your house. And you pay them to your mortgage lender for things like appraisal fees, title fees, and other things lawyers spend their time thinking about.
It’s basically the most painful thank you gift for them giving you a mortgage.
These usually range from 3-6% of the price of your home. So for that $400,000 imaginary house we were talking about, the closing costs would be around $12,000 to $24,000.
So in actuality… it’s a big f u gift to yourself for buying your first home.
Congratulations you lucky *$%@&
K so you’re not ready to buy a house
That’s literally most of us right now.
Instead, we get to stick up our noses at multi-million dollar houses on Selling Sunset, as we watch from our college futon in our Target pyjamas.
Buying a house today will obviously be hard AF, but it’s not impossible.
With the right savings plan and credit building work, you can definitely get there sooner than you think. So don’t let the market and the media discourage you. You got this 💪
If you are serious about buying a home one day, why not get started on building some of that good credit.
When you’re finally ready with your F’N FUNDS BABBYY, there will be nothing else stopping you.
Just download Cleo and sign up for our Cleo Credit Builder Subscription. You can literally start building credit by paying off your monthly Netflix bill.