Okay, maybe that is not the first thing that comes to mind immediately following engagement. If you have marriage on your mind, it’s more likely that you’re probably also thinking about where you’re going to live when you begin your life together. If buying a home versus renting is the direction you would like to take, here are 5 basic tips to prepare you for a mortgage friendly matrimonial home purchase. If you don’t see answers to all of the questions you may have, I suggest you consult a mortgage professional who can fill in the blanks.
Make a budget together
I know this seems like pretty basic advice, however, I believe it is imperative to your financial success as a couple given that you both have likely run your finances independently up until now. Be sure each of you fully understand all of the costs associated with home ownership and are ready to commit to a long term debt called a mortgage. Keep in mind there are upfront costs when you initially take possession of your new home as well as ongoing costs after you’ve moved in. In addition to the mortgage payment there are property taxes, home insurance, cost of any repairs and maintenance, along with monthly condo fees if applicable. What I’m trying to stress is that you don’t want to be married to your mortgage, so do discuss and agree on a budget beforehand instead of being overwhelmed after you have already made the commitment to your mortgage company.
Combining Credit Scores
Your potential lender will most likely be looking closer at the credit habits of the higher income earner as it is assumed they will be paying a larger portion of the mortgage. It is their credit score that will be used to determine the risk level of your mortgage application as well as interest rate options available to you. Of course the co-borrowers credit is considered as well, as it can help to strengthen the overall application. If one of the borrowers has any credit issues or too much debt, it may be determined that it makes sense to leave that individual off of the application for now. If the one partners income is not sufficient to qualify for the mortgage on their own, you may want to look at bringing on a family member to co-sign for a period of time. In this case I recommend you speak with your real estate lawyer about dower rights and title options so you are fully aware of all legal implications.
Income for qualifying
There are many acceptable income sources that can be included when qualifying for a mortgage, what is allowed versus what isn’t tends to vary greatly with different lenders. If you or your partner have any questions on whether your income can be included I suggest you speak to a mortgage specialist before you get too far into the process. I make this suggestion so you can set expectations early. This way you can avoid unnecessary surprises in the event a larger downpayment is required or you are going to be charged a higher interest rate on the mortgage that will increase your payment amount.
If one or both partners already own homes and have mortgages, you will have to decide what you’re going to do with those properties prior to purchasing a home in both names. One option is to rent them out and all or a portion of the rental income can then be included in total income used to qualify for the new purchase, if required. A second option is to sell the properties with the residual sale proceeds going towards the downpayment on your new place. If you are thinking of selling don’t forget to take into account the potential payout penalty you could have if you’re breaking your mortgage term early as this could eat into your sale profits. Before committing to any decisions regarding a property purchase, make sure you’ve explored all the potential financing options for multiple scenarios in order to find the one that best suits your current needs and future plans.
Think about the future
If you’re thinking of combining households, consider the next 1-5 years in terms of housing needs and budget availability. This is important as it will help you choose a mortgage term, interest rate and amortization that will help you to achieve your financial goals as a couple. Details like potential maternity leave, a future job change or the desire to upgrade as soon as possible will all impact which mortgage solution suits you best.
The final tip I want to leave you with is to set expectations and priorities prior to meeting with a mortgage professional as this will ensure you’re getting accurate information that applies to you. This ultimately allows you to make an educated decision when it comes to your future mortgage and marriage together.