With the holidays fast approaching, many people are hoping for end-of-the-year bonuses. What does that mean for those trying to purchase a home?
To use a holiday bonus towards the purchase of a home, you must have received the bonus as part of your income for at least two years (remember 2 is a magic number in lending). That’s because lenders want to see consistency and the likelihood that the bonus will continue.
If bonus payments cannot be used for income qualifying, here are some other ways to use the extra income:
- Pay off your debt: whether it’s student loans, auto loans or credit cards, all your monthly obligations are taken into consideration when you apply for a mortgage (ex: debt-to-income ratio).
- If you lower your monthly debt, it could help in qualifying for more.
- Plus, lowering your current balance could help improve your credit scores.
- Down payment– if you are able to put more money towards the down payment, you could lower or avoid PMI (what is PMI?)and lower your monthly mortgage payment.
If you already own a home, consider using the bonus to pay off some of the principle on your mortgage. An extra payment towards the principle can lower your total interest paid throughout the life of the loan and lower your loan terms.
Photo courtesy of Mike_fleming (Flickr)