Waiting for Marriage?

Bride Showing Boots - Cropped

 

Are you waiting for marriage? No, I know you’re not waiting for marriage for THAT – I mean are you waiting for marriage to buy a house?

Let’s be real – the majority of couples are either already living together when they get engaged or they end up moving in together sometime before the big day. Often, it’s logistics, if nothing else. If you’re planning on spending the rest of your life with someone, why renew separate leases, etc., when you’re planning on making everything official in a few months.

For some reason, most couples draw the line there, even though one of their very next steps, as soon as the ink dries, will be to start looking for their first home purchase.

“So should we buy while we’re still engaged?

– Maybe. I believe couples should at least put it on the table as an option. They should find out what their options look like before, and get an educated forecast as to how the marriage will impact those options. Then, they can decide if they definitely want to wait, if they need to buy before marriage, or if it’s simply an option they want to leave open.

Why Procrastinate?

My first question is why procrastinate? If you know you’ll want to buy once you’re married, and you don’t do any of the legwork beforehand, that raises the chances that you’ll be more likely to make a rash decision.  If you have a 6 – 12 month engagement, that’s substantial time to analyze short term market fluctuation in both housing prices and interest rates. It will also give you the chance to leisurely look for “the perfect house” and decide together what aspects are, and aren’t, important, and lessen the chances of “buying at the top” of either rates or home prices.

If you find something before the big day – great. That’s one more thing off the list, and one step closer to starting that life together. If not, no big deal, just keep looking as originally planned.

“When you get married, his/her credit is now your credit.”

Yes and no. Keep in mind, I have a primarily Texas audience, and impacts vary from state to state. In Texas though, there’s definitely a scenario where your spouse’s financial situation can impact both of you.

When meeting with my married (or soon to be married) clients, I always start by asking if they’re dead set on being on the loan together, or if they’re fine taking the path of least resistance.

I explain that two people can own a home together (i.e. both be on title), without both being on the loan. Furthermore, if they’re already married, and were to get divorced, it doesn’t really matter whose name is on what because the court will decide what happens to both the equity (or lack thereof) and any debt associated with the property.

Here’s why I say “the path of least resistance” –  The only positive thing an additional borrower can bring to the table is additional income. This is because when there is a pair of borrowers, the lower of the two credit scores is what is used for qualification. Therefore, if the person with the higher income also has the higher credit score, and they income qualify by themselves, adding a co-borrower is simply adding someone else to underwrite.

Additionally, if the second borrower is bringing more income, it doesn’t matter if the first borrower qualifies alone. That’s because the income portion of qualification is pass/fail for the most part. Either the debt-to-income ratio (DTI) qualifies, or it doesn’t – a high DTI isn’t normally going to negatively impact rate, nor is a low DTI going to positively impact it (all things being equal). If they’re bringing more income (that’s not needed), but a lower credit score however, they’re likely to be a negative impact on the rate, in addition to being another variable to underwrite.

FHA Loans & Community Property States

This is the scenario, where in Texas, the “their credit is your credit idea kicks in.” If applying for a conventional loan, a married borrower can choose to apply by themselves, or jointly with their spouse. With an FHA loan, that same borrower can still choose to apply by his or herself, but the application will still have to take into account the spouse’s debts without taking into account any of their income. This is where couples can end up in a tight spot, and this is why it is best to have this conversation before the wedding.

As an illustration, let’s say a borrower makes enough by herself to afford a home she and her future husband will be happy with. But in our specific case, she would need to go with an FHA loan to qualify. However, her future husband does not have a sufficient credit score to qualify, and won’t be able to be on the loan – and he has $2,000 of monthly debt – if our sample borrower has to qualify including this debt, her debt-to-income ratio will now be too high. So in this situation, if the couple wants to buy in the near future, it’s necessary for her to buy before the wedding, so she can get an FHA loan, by herself. She can still put her future husband on title. One future spouse can even “gift” the other funds normally, to help with the down payment. To protect themselves in case the marriage doesn’t work out as hoped, they can work with an attorney to draft a simple and cheap prenup, to cover them on the property transaction.

The moral of the story is to know your options while you still have them, and to not put off getting started, just to follow tradition (when you probably haven’t followed it in other areas). So if you’re engaged, and you know you and your future spouse are going to want to start your life together in a new home, let’s talk and see if it makes more sense to consider purchasing before the big day.

 




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