Married Couples Lead the Pack in Home Sales: Here’s How You Can Prepare
Getting married begins a new chapter in your life. Not only because of your new role as husband or wife, but also because tying the knot can mean moving to a new city, starting a new career, planning a family, and for many couples, purchasing their first home.
Even though single people purchase homes every day, homeownership is often more attainable as a twosome. Combined incomes make it easier to save for a down payment and manage housing costs, which could explain why married couples dominated first-time homebuyer statistics in 2016, making up 66% of all buyers, according to a recent Profile of Home Buyers and Sellers.
Buying a home signifies stability, and some couples view marriage and a home purchase as a rite of passage into true adulthood. But regardless of whether a homebuyer is married, single, male or female, buying a house requires preparation.
If marriage and homeownership were both a long-term goal and you’ve already achieved the former, here are a few tips to help you and your spouse get to the next level.
1. Keep an Eye on Your Credit Scores
When you and your spouse apply for a mortgage loan, your lender checks all three of your credit scores to assess creditworthiness, and use the median of both scores to determine eligibility. Keep in mind, however, the lowest two credit scores decide your mortgage terms and interest rate. So if you have a high credit score and your spouse has a low credit score, or vice versa, this can impact qualifying for a home loan.
Ideally, both of you should have good credit to get the best interest rate. You need a minimum credit score of 620 for a conventional loan and a minimum credit score of 580 for an FHA loan. For the most favorable rate, your scores need to be around 740.
If one person has a significantly lower credit score and you fear not qualifying for a home loan or getting stuck with a higher rate, one option is for the spouse with the highest score to apply for the mortgage on their own. For this to work, this spouse’s income must be high enough to support a mortgage payment.
Although this approach can help you qualify, it also reduces your qualifying amount, which means you’ll have to purchase a less expensive home.
2. Use a Gift For Your Down Payment
Some married couples put off buying a home because they don't have enough cash for a down payment and closing costs. If you don't qualify for programs allowing zero down or down payment assistance, consider using gift funds to cover your mortgage expenses.
Both FHA and conventional home loans allow gift funds from a relative when a borrower doesn’t have funds or comes up short. The main stipulation is that funds be a gift, and not a personal loan.
This provision benefits you tremendously, but your donor may have to pay a gift tax if the amount they give exceeds the annual exclusion limit set forth by the IRS. As a married couple, a relative can gift up to $28,000 for your home purchase without paying the gift tax.
3. Scale Back on Wedding Costs
Weddings are a once-in-a-lifetime event. So understandably, some couples go over and beyond to make their day extra special. According to a survey by The Wedding Report, the “average cost of a wedding in the United States is around $25,961,” which is the equivalent of a down payment on a house.
There's nothing wrong with planning an amazing day. But remember, this is only one day in a lifetime together. Rather than blow all your cash making this day magical and perfect, put some of what you’ve saved toward the down payment on a house.
You can also hit your goal of homeownership faster by saving any monetary gifts you receive as wedding presents, and by sacrificing an expensive, luxurious honeymoon in lieu of a more practical adventure.
Homeownership can be a steppingstone to greater wealth, confidence and stability. If you weren’t able to achieve this dream as a single person, getting married may provide the extra income you need to reach your goal. Contact us to discuss your mortgage options and we’ll help you move forward with your first big purchase as a couple.