|Marriage can hamper efforts to buy home
He popped the question, and you said “I do.”
Getting married is now officially happening. When you say “I do,” you’re not just saying “I do” to that person, you’re also saying “I do” to all their finances, positive or negative. Their finances will shape how or if you can buy that home.
Why getting married
first may be bad move
The old pattern of getting married and then settling down is no longer valid. The dream of attaining homeownership can come to a screeching halt if would-be buyers don’t plan out their finances in the early stages of their relationship.
Here are some essentials you must know about your future spouse before tying the knot:
• Debt: The single most limiting factor above and beyond anything else is your spouse’s debt. Let’s say, your spouse has student loans, credit cards, an auto loan and payment obligations. If you’re buying a home, there’s a good chance even if they are not on the loan, their liability obligations will be counted against your qualifying ratios, reducing your ability to qualify for the loan and consummate the house sale. Here’s the deal. Depending on the property state, it may or may not be a community property state. If it is a community property state, for example like California, debt of the spouse is automatically joint, no matter who is on the loan. This problem is solved by buying the house first.
• Credit score: What if your credit score is 800 and your spouse’s is 620? Lenders always use the lower of the two credit scores, so your loan just got real pricey. In fact, if we look at a loan in the amount of $300,000, assuming a 30-year, fixed-rate mortgage, an individual with an 800 credit score could secure a 4.625 percent interest rate versus somebody with a 620 credit score, who might receive a 5.5 percent interest rate. Looking at the two interest rates over the long haul side by side, it’s an additional $57,942 more in interest because your spouse has a 620 credit score. That’s $161 per month more in interest. The problem is solved by, once again, buying the house first.
• Cash: If your spouse can’t source cash deposits going into their bank account, you both lose. Even if the money is not being used in the house purchase, the mortgage company is still required by federal law to source any deposits. Lesson learned…buy the house first!
• Loan type: A diamond in the rough, if you’re using a conventional loan to buy a house when you’re married, and the other spouse is not on the loan, their liabilities will not count against your debt ratios as they otherwise normally would. The culprits are loans by the FHA, and VA and the USDA. Lenders will look at your ability to qualify for the house purchase based on a joint application in most instances unless otherwise requested.
By qualifying for the loan prior to getting married, a prudent couple would stand to gain the most benefit by having more options available to them. Jumping in headfirst by getting married does limit the way a lender can qualify a would-be homebuyer.
So if you’re engaged or will be, stop there. Congrats on getting engaged, now go talk to a mortgage lender to see how your financing options can line up.
Doing this before you get married can mean the difference between settling down now or settling down years down the road.
Scott Sheldon is a local mortgage lender, with over six years of experience helping people purchase and refinance primary residences, second homes and investment properties. Visit him at www.sonomacountymortgages.com.