Credit – Income – Assets (C.I.A)
As a lender, you might be wondering what basics we look for with each client who is hoping to get pre-qualified. Below is a basic version to give you an idea of what we are looking for, and a handy acronym (CIA) to help you remember it:
Credit (C) – The first part are your Credit Scores, which are and always will be important for home ownership and real estate investing. Every Lender will use the Middle Score for qualifying purposes, meaning whether the loan is under your name alone or with a co-borrower, each person will have three scores. We throw out the highest score and the lowest score for each borrower, and then look at both middle scores for each borrower. The lower of the two is what every lender uses to qualify the client.
Income (I) – For income, the first question we ask is if you are a W-2 (Salaried) Employee or Self-Employed. If you are a W2, we will look at your gross monthly income, which means before taxes, insurance, retirement, etc. are taken out of your paycheck. We only ask to see the last 30 days of paystubs, so having that handy will expedite the process for you.
If you are self-employed, we will need to review your last two years of Tax Returns (Personal and Business if applicable). With tax returns, we use the Net Income, but we may be able to add back certain line items to your overall Gross Income.
With Business Income, we will review your K1 income depending on your ownership of that business. We take a 2-year average unless your most recent year has gone down in income, then we only use the lower most recent amount.
Assets (A) – For assets, we will strategize the best amount to put down as a down payment based on your savings or availability of funds. Usually you can add around $6,000 – $8,000 to the down payment for closing costs and escrows. This will give you the best idea of how much you will need to save up for any home. For First Time Home Buyers we are able to put a minimum down payment of 3%, so when you are looking at homes you are able to take 3% of the Purchase Price to get an idea of your down payment requirement. There are other options to help clients satisfy the assets part with Gift Funds. This can only come from Family Members meaning Parents or Siblings or Children.
