So you’ve decided as a couple that homeownership is your next step. Congratulations! Before you start looking at places to live, it’s important to agree on the direction you’re headed. Talking with a mortgage loan officer will help you understand what it takes financially to buy a home. You can prepare by discussing these questions together in advance.
What’s your monthly budget?
The first thing a lender is likely to ask about is your budget. How much can you afford as a monthly payment, factoring in all your other expenses and maintaining a rainy day fund? (A good rule of thumb is to have enough savings to cover at least six months of expenses.) You should also decide together what budgeted items you would be willing to eliminate or scale back in order to afford the home you want – for example, cable or streaming service, eating out, or going to concerts. You’ll also need to decide how much you can afford upfront for a down payment and closing costs.
What do you want in a home?
Deciding what kind of home you want and where is not only a lifestyle choice – it also impacts costs and financing options. Do you have a single-family house, condo, townhome or co-op in mind? Urban, suburban or rural? Want to live in a particular city or school district? The type of dwelling can determine the kinds of financing options available. The neighborhood where the home is located may impact the availability of special programs that offer down payment assistance or other benefits, as well as other costs, such as property taxes. Also, agreeing on “must-haves” will help you narrow down the choices.
How long do you plan on staying?
Do you plan to live in this home for a long time, or do you consider this a “starter home” with plans to move in a few years? Your vision for how long you’ll be there will help determine the mortgage terms that are right for you. It may also help you weigh what items on your wish list are open to compromise. If you plan to “move up” after a few years, your list of “must-haves” might get shorter.
What are your financial situations?
Understanding your partner’s credit history and current financial situation, as well as your own, is crucial. Lenders examine customers’ entire financial picture to determine if they can repay the loan. Some of the factors considered include income, job history, debt and credit scores. Avoid surprises by researching and talking about it now. If either of you doesn’t know your credit profile, you can obtain a free copy of your credit report at www.annualcreditreport.com.
Should you apply for financing jointly?
Married or not, couples can apply for a loan jointly, or one partner can apply as an individual. If you apply for financing together, the lender will consider both of your financial situations. If you both have good credit, applying jointly might bring advantages like a lower mortgage insurance cost. If one of you has a low credit score or a lot of debt, it could affect the loan amount or interest rate, or even prevent loan approval. That may make it a good option for the person with better credit to apply in their name only. But then the second person’s income won’t be factored into the ability to repay, potentially affecting the loan amount you qualify for, and there are other factors to consider about having only one partner on the loan. Ask your lender to walk you through each of the scenarios available to you.
Buying a home together is an exciting step in a relationship. It can also create strain if the two of you aren’t on the same page. Set yourselves up for happy house-hunting with an open discussion about your finances and goals for homeownership. Then sit down with a lender who can help you understand your options.