Buying Your Home Sweet Home Together
For much of the past century, life was very well ordered. You got married. Bought a house. Started a family. In that order. The husband worked; the wife stayed home to look after the house and the kids. Buying a house was pretty straightforward. It was the husband’s income and credit-worthiness that was taken into consideration when applying for a mortgage loan.
Well, things have changed! Today, both partners likely work and have their own credit scores. With later marriages, this could be for good or ill. Merging finances when you both have a financial history can be tricky. According to some sources, there’s no minimum credit score needed to qualify for a mortgage. However, in general, most lenders require that you have a credit score of at least 600 and some require a score of 620 or more.
First you need to pin down the extensive list of basics as a couple: what type of neighborhood you want; whether you want a town house, ranch house, farm house, co-op or condo; how long you intend to live there; what type of neighborhood schools you desire. That leaves the decision of whether you want to apply for a loan individually or as a couple.
If both partners have stellar credit and good jobs, you’ll probably want to qualify for the larger loan based on your combined incomes. If, however, only one of you is credit worthy, or if one of you has an income that is too low to qualify for a loan, you may want to apply individually. That may mean that you may have to settle for a little less house and a lower loan. A USDA rural development loan does take into account total household income, but there is a ceiling on income to be eligible.
Gather your documentation. Two-two-two is a general rule for all documentation requirements. This means that you’ll need two years of W2s, two years of tax returns and two months of bank statements.
If one spouse doesn’t meet those requirements, then it might make sense to leave that spouse off the mortgage. If your spouse is self-employed, for example, he or she will need two years of tax returns for the business. If he or she has only been self-employed for a year, it may make more sense to leave him or her off the loan. Joint checking accounts should not present a problem even if only one of the signatories is on the loan, since both partners are legally able to use the account.If one spouse has a lot of debt, it may be preferable to apply as an individual. However, in a community property state, all assets and debts belong to both spouses. There are currently nine community property states; check before you buy to see whether your state falls into that category. If the home is purchased in the name of one individual, consult with your attorney about the best way to assure that you have shared title to the property.
Couples looking for properties in the current market have an easier choice than those who bought during the housing boom. Lenders have tightened requirements for loans, abandoning the subprime, high-risk and stated-income mortgages that led to the housing crisis. House hunters today need to be well qualified, and they must choose between fixed and adjustable rate mortgages. Many people prefer a fixed-rate loan because it helps to know what your mortgage payments will be for the foreseeable future. This tends to suit couples rather than individual buyers, simply because applications that boast dual incomes have a better chance of succeeding in the current market. If both partners have a sketchy credit history or too much debt, they should consider renting until such a time that their credit is repaired, since banks consider your debt-to-income ratio as well as your overall credit score.
View the purchase of your home as an investment. For most Americans, your home is the greatest part of your net worth. So think long and hard about your home’s location. If you plan to stay long-term, you may decide to live somewhere that property values gradually increase. If you are only staying a few years, you will want to make sure that your home doesn’t lose value in the near-term.
It’s crucial for a couple to take the long view. Do you want children? Animals? Do you want to commute on public transportation or is a car and its concomitant expenses something you are willing to shoulder? The National Association of Realtors found that 27 percent of home buyers cited the quality of local schools as critical to the decision of whether to purchase a specific property, while a further 22 percent said that having conveniently placed schools was also an influential factor.
There’s no right or wrong choice for buying a home when you marry. Just make sure that your plan suits your circumstances. Happy house hunting! ■
Sources: homeguides.sfgate.com, investopedia.com, legalzoom.com and quickenloans.com.