Okay, maybe that is not the first thing that comes to mind immediately following an engagement. If you do have marriage on your mind, you are probably also thinking about where you’re going to live when you begin your life together, which would likely include space for your children. 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, consult a mortgage professional to 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, and the 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 discuss and agree on a budget beforehand instead of being overwhelmed after you have already made the commitment to your mortgage company.
When making up your new budget together, family planning may come to mind. If maternity leave could be happening around the same time you need to qualify for a mortgage, don’t worry! Most lenders will consider some income from the borrower on maternity leave if the plan is to return to the same employer and position at the end of that leave time. Be prepared to provide an employment letter which includes the return to work date and income information.
Combining Credit Scores
If you plan on borrowing and qualifying as a couple, your potential lender will 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 make 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.
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 most often a portion of the rental income can then be included in total income used to qualify for the new purchase. The amount of rental income included in meeting the debt servicing guidelines is dependent on which lender you choose to work with as they all seem to have different rules and guidelines. 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 cost could greatly reduce your net sale proceeds. Before committing to any decisions regarding a property purchase, make sure you’ve explored all of 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 accordingly. 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 such as 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.
If you’re looking for an experienced mortgage professional, contact Jackie at 780.433.8412 or firstname.lastname@example.org. Stay in the loop by following on Twitter @mortgagegirlca.