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Romancing the loan: buying your first home as a new couple

February means poems, cards, and gestures of love. If you are in newlywed heaven however, there is only one more task that makes newlywed couples feel even more official — buying a home together (the ultimate form of nesting).

Realtor’s Kathleen Willcox compares buying your first home to wedding planning. It can be as stressful for even the most solid of couples. “Indeed, when you combine the pressure of a new lifetime commitment with first-time home-buying jitters in a hot real estate market, you have a recipe for a potential housezilla meltdown,” she says. Saying “I do” to a home can be as smooth as your first dance, if you know the right moves to make, says Willcox, who asked some experts what newlyweds need to know about making a financially sound mortgage commitment and choosing the right home for their happily ever after.

First, check your FICO (credit) scores. If you don’t have much of a track record for credit, lack of a solid credit history can make lenders question whether you’ll be able to make your monthly mortgage payments. Good to know that most lenders consider a credit score of 740 ideal, while a score of 620 is the baseline for securing a decent loan with a reasonable interest rate. Bad credit or a lot of debt could cause your loan to be turned down.

Does one of you have good credit while the other is a weak partner in that regard? If your credit is good, but your partner’s score is in the red, you do have options. Willcox quotes Texas-based attorney Collen Clark: “It’s possible to name the mortgage loan after just one spouse. And that’s highly recommended if one partner’s credit score is low, because it excludes one party’s debilitating credit ratings from being considered during the mortgage calculations, ensuring a more affordable and friendly payment scheme.”

Keep in mind that ownership is determined by whose name is on the title deed. So make sure both spouses’ names appear there, even if only one name appears on the mortgage. “At the end of the day, married couples must learn to disassociate the property’s ownership from the mortgage,” adds Clark. “Being the sole borrower of a mortgage loan does not equate to ownership.”

Willcox encourages new couples to talk about the future in broad strokes. Will this be your primary residence, or will you consider it a starter home? Will kids enter the picture, and will an elderly relative be taken in at some point? These are all important things to consider before determining the size of the home you’ll need. Then drill down on a price range and begin working on your financing choices. A great choice for a newly married first-time homebuyer couple is an FHA mortgage — a federally backed loan that requires just 3.5% down. Definitely something to think about after putting all that money out on a wedding. And remember that a home purchase comes with property taxes, homeowner insurance, the home’s upkeep, and possibly some homeowner association fees if they apply.

Getting an offer of an extremely low interest rate should make you take a few steps back, however. It may sound like a great deal, but there are still a number of sketchy loans out there, according to Willcox. “For instance, if you miss a payment, the late fees can be severe, and the deadlines for payments can tighten. These loans aren’t upfront about how tough the penalties are, so couples can end up losing their homes after a few missed payments.”

The last piece of advice/idea Willcox offers is what she calls a “house hack.” House hacking means buying a duplex and renting out the other half, diminishing your own financial outlay. But check with your loan professional on what size down payment might be required for this type of investment.

Realtor, TBWS

"Home Buying"