Buying a home is an exciting adventure, and that can be especially true for couples who are buying together for the first time, whether they’re newlyweds, engaged, or partners with no plans to marry. However, the purchasing criteria for buying a new home, including applying for and securing a mortgage, the setup of legal documents such as who holds the title and deed to the property, and how the down payment will be made, will vary. Knowing how this process will unfold can help the process go smoother and help prevent you from making unnecessary mistakes.
Defining Expectations
As newlyweds, you might not know the ins and outs of your partner’s credit history. However, this would be the time to discuss this information before applying for a mortgage.
Also, to avoid conflict when purchasing your first home, be sure you are both on the same page when it comes to financial expectations. For example, where is the down payment coming from? Will you both be contributing equally to it? Will all or part of it be gifted from a parent or relative? And will that change your equity ownership?
Many married couples share bank accounts so household costs can be commingled. However, if you’re not married, discussing things upfront can help you avoid surprises about who will pay the closing costs, who will get the mortgage deduction at the end of the year, and how future repairs, home upkeep, and any renovations will be paid for and by whom.
You will also need to decide ahead of time if you are applying for a mortgage as a married or unmarried couple and what type of ownership you want. There are different ways to take ownership of a property, each having advantages and disadvantages; your mortgage lender should outline all the different variations for you to choose from.
The Mortgage Process
First, you must do your due diligence to find a mortgage company that has a reputation for being dependable, honest, and transparent to help ensure a smooth, stress-free transaction.
It’s not required to have both spouses on a mortgage, and marital status is not even a factor when applying for and seeking a loan. In fact, the Consumer Financial Protection Bureau has a statute stating that financial institutions that extend credit are required to “make credit equally available to all creditworthy customers without regard to sex or marital status.” That said, several other criteria must be met before a lender will fund you a loan.
Get a credit report to make sure there are no strikes against either of you before applying for a mortgage. If one of your credit scores comes up short, it could be difficult to secure a mortgage if applying as a couple, so it’s important to know your score before applying for a loan.
Monthly income
Once you have determined who can be on the mortgage documents, the lender will look at your monthly income. Whoever is responsible for the mortgage and how much they make will at least partially dictate the amount of money the mortgage company will lend.
Debts owed/debt-to-income ratio
For many young adults, student loans can stand in the way of meeting the debt-to-income ratio (the amount of debt you have compared to your monthly net income). This number is scrutinized during the loan process, so be prepared with all your documents to show this information.
Assets
Having assets can help offset your debt-income ratio. The lender may be able to take one or several assets into consideration to attach as a lien to the property you want to purchase. This is known as an asset depletion loan or mortgage, which may help you qualify for a loan if your income is not enough.
If you know what your buying power is, it will help you and your agent narrow your home search to what you can afford. In fact, most agents will not even show you a property unless you have documentation from a mortgage lender showing that you are prequalified for a certain loan amount. In addition, most sellers will not accept or entertain an offer without your prequalification.
Find the right real estate agent
Selecting an agent is not always as simple as it seems. Most people know several real estate agents, so here are some tips for how to pick the best real estate agent for you:
Interview three agents before making your final choice. It’s crucial to have someone you will feel comfortable with and trust. This includes their knowledge of the area where you want to purchase, communication style, personality, daily availability, and typical response time.
Set clear expectations up front with the agent by communicating with them about what role you want them to play in your home search. For example, do you prefer that the agent have a hands-on approach from start to finish, or do you want to conduct your own home searches and just rely on them to show you the properties?
Understand what the protocols are if they are unavailable. Ask who will oversee showing you homes or handle the transaction if you are under contract to purchase. Also, determine if you will be working directly with that agent or if they will partner you with another agent on their team. If so, you must decide if that arrangement is acceptable to you.
Make sure the agent asks a lot of questions so they have a complete understanding of what both you and your spouse or partner want before starting your new home search-you could have different criteria that the agent should know about and understand.
Finally, do your due diligence. Check reviews, and ask people you know who have used that agent if they were satisfied. Be aware that one agent may be the perfect match for your best friend or relative, but that does not mean it will be the best fit for you.
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