Module 2: Understanding Your Finances

Lenders evaluate your financial profile through a specific lens. Understanding how they see your finances helps you prepare strategically and avoid surprises.

Your Credit Profile

Mortgage lenders pull your credit report from all three bureaus (Equifax, Experian, TransUnion) and use the middle score for qualifying. Get your free reports at AnnualCreditReport.com and look for: errors (dispute them immediately), negative marks (understand their age and severity), and utilization (pay down balances to under 30%).

Income Documentation

Lenders want to verify stable, documentable income. For W-2 employees, this is straightforward: 2 years of W-2s and recent pay stubs. For self-employed borrowers, lenders average 2 years of net income from Schedule C or S-Corp distributions — not revenue.

The Numbers That Matter

• Front-End DTI = Monthly Housing Costs / Gross Monthly Income. Target: under 28%.
• Back-End DTI = All Monthly Debts / Gross Monthly Income. Target: under 43%.
• Emergency Fund: Aim for 3–6 months of expenses, separate from down payment.
• Closing Cost Reserve: Budget 2–5% of the loan amount in addition to your down payment.