Getting a Mortgage Together: What Married Couples Need to Know
When people get married, they often start to think about buying a home together. Although there are many instances in which one part of a married couple may purchase a home individually, there are benefits to applying as a couple. Younger pairs can usually qualify more quickly when they pool their funds together and transition more smoothly from renter to owner. These considerations help people discover the aspects about married home buying that are unique to buying a home alone.
Meet Income Requirements
The most obvious benefit to applying for a mortgage as a couple is the increase in potential income on the application so you can get ahead with real estate together. The amount that an applicant can qualify for in a mortgage is governed by the monthly mortgage payment. This payment includes principal, interest, property taxes, and any insurance, if required. This combined bill is often called "PITI". Lenders usually prefer borrowers to have a PITI payment that is less than 28 percent of their gross monthly income, although lenders may make exceptions in high cost-of-living areas.
Since lenders take into consideration the mortgage payment, but also the total monthly debt obligations (PITI plus credit card debt, auto loans, and student loans), many people focus on decreasing their debt to boost their buying power. However, increasing the income portion of the ratio is another useful way that couples can improve the size of the mortgage they could possibly get. Any income that a married couple wants to count in the application should be consistent, regular, and easy to verify. Fortunately, there are a number of options for first-time home buyers.
Consider Credit for Two
Married couples usually decide to share finances to some degree. They may open a few savings accounts together, or get a shared credit card for purchases. What they may not understand is how this can affect their credit individually. Just as combining income in marriage can be a boon for mortgage applicants, balancing all credit scores together could be somewhat of a liability. Everyone has three credit scores from the credit reporting agencies, and this doesn't change after marriage. As such, even a shared credit card account could affect one person's credit more or less than the other.
Couples who want to take advantage of the shared increase in income should make sure that their credit scores are in the best possible shape before applying for a mortgage. Lenders typically take the median score for each applicant into consideration, which means the middle score. This may not be the same as the average of the three credit scores. As a result, someone with a single score much lower than the other two might qualify more easily than a person with two lower scores and one higher one.
Set Preferences for the Home
Clearing the hurdle of mortgage pre-approval is just the first step in a longer process toward buying a home. The next step involves a great deal of discussion about potential homes and deciding which one will present the best investment for the couple in the future. Many financial experts think it's wise to wait to look for homes until after people have an idea of what lenders will reasonably give in a mortgage loan. That said, it's never too early to share ideas about buying a home and come to an agreement about expectations and any home buying misconceptions they may have.
Buying a home as a single person is complicated enough, when only one person's opinion really matters. Couples will find the process a lot easier if they can come together to identify the things they really need in a home long before they start following up on Multiple Listing Services (MLS) listings. Hashing out the preferences concerning:
- property and house size
- future resale value
will cut down on the conflicts that could arise when it comes time to actually settle on a specific property. It may also significantly shorten the search for a home.
Putting Gifts Toward a Down Payment
For most mortgage applicants, buying a home involves a sizeable investment in the form of a down payment. These days, a lot of married couples are forgoing asking friends and relatives to help them stock their homes in wedding gifts in favor of asking for help with the down payment. Although getting a leg up on the down payment can certainly help people to get into a home much sooner than they could save up on their own, it has to be done properly to be accepted by the lender.
Perhaps paradoxically, many lenders are perfectly willing to accept a gifted down payment of 20 percent or more, but expect that anyone putting down less than that contribute some of their own funds. Whatever couples want to put in for the down payment, the gift should be carefully documented. Lenders often won't accept gifts provided from people who aren't a parent, sibling, or grandparent. However, if the gift has been sitting in the applicants bank account for several months, the lender may not challenge the existence of the money at all. Couples who get a substantial gift shortly before applying for a mortgage should get a letter saying that the money is a gift, not a loan.
Although the steps of buying a home have a few obstacles that couples have to pass through, purchasing real estate can be a beneficial investment for Millennials that ensures a better future for both people. When couples know what to expect from the process, they can improve their odds of an ideal result.