Author: Kris Lindahl | CEO/Owner The Kris Lindahl Team at RE/MAX Results
Couples planning to tie the knot often wonder whether it’s a smarter move to invest in a home before or after the big day. Truth be told, a marriage certificate really won’t make much difference concerning the right time, but there are things to take into account when buying a home together. While countless considerations will go into selecting the perfect home, some of the most pertinent concerns that couples should address when buying concern finances. Read on to learn more about applying for a mortgage as a couple, tax issues, and other considerations of the process of buying a first home together.
Deciding When to Apply for a Mortgage
From a lender’s standpoint, it doesn’t matter whether the parties applying for the mortgage are married or not, as it will not have any relevance on their bottom line credit scores and other qualifications for a loan. Furthermore, marriage status is not a consideration when determining loan qualification amounts or interest rates. Each individual is typically underwritten on the application, so couples can apply at any time.
Applying Together vs Applying Separate for Home Loans
While getting married often means that couples are dedicated to making major decisions and purchases together. However, there are a three key situations where it may be best to leave a spouse or soon-to-be-spouse off the mortgage application altogether.
1. One Partner Has Poor Credit: Depending on the type of loan being applied for and the lender, both party’s credit scores are scrutinized. While some companies give consideration to the average score of both applicants, many will pay more attention to a particularly low score by one party. To get the best financing rates, the low credit score holder should consider staying off the mortgage unless their income is necessary to boost loan qualification amounts.
2. One Party Doesn’t Meet Income or Paperwork Requirements: There are numerous documents required with mortgage applications, and certain situations may prevent one person from having all them available. Some situations include extended periods of traveling and/or living abroad, recently starting a new business or having zero income due to school or familial obligations.
3. One Individual Has Excessive Debt: Lenders take a hard look at each party’s debt-to-income ratio (DTI), which can heavily impact several aspects of home loan availability and terms. Those those with heavy debt may consider foregoing applying to decrease the overall DTI. However, amid community property states that consider debts of married couples combined, the solo applicant will want to proceed before the wedding and make legal arrangements to determine ownership and title issues.
Holding Title Prior to Marriage and Determining Ownership with Sole Purchases
Those involved in lengthy engagements involving cohabitation that opt for only one partner to be on the mortgage will want to take precautions to include that party into some type of agreement concerning the property. After all, how a home is titled has a tremendous bearing on transferring the property in the event of the official owner’s death and in regards to legal ownership for the duration of residency. Speak with a real estate attorney to see how state laws and holding title effects you, especially if you live in a community property state. There are ways to include non-title parties into the ownership scene with protections such as Joint Tenancy, Tenant in Common, and Holding Trust agreements.
Homeowners can receive significant tax benefits to couples, but navigating through the process when unmarried can present challenges. Married couples qualify to take deductions for mortgage payments, interest and property taxes when filing jointly. Unmarried couples not filing jointly will want to explore how to divide any tax benefits the claimant receives. Another issue facing couples in one-party ownership situations are gift taxes for the non-owning spouse. Again, speak to a professional familiar with real estate tax laws to avoid facing these penalties.
First Time Buying Programs
There are a number of first time home buying programs that each have their own restrictions, regulations and requirements for financial assistance. Depending on the situation whether married or not, many couples are delighted to discover they qualify for such programs such as Federal Housing Administration (FHA) Loans, US Department of Agriculture (USDA) Loans, Veterans Affairs Loans and many other local grants and programs.