A Crash Course in Financing Your First Home From a Mortgage Maven
I NOW PRONOUNCE YOU BORROWER AND CO-BORROWER
Written by: Julie Aragon
Yes it’s cliché by now, but the reality is, when it comes to buying a home, for most people it’s true.
After helping hundreds of couples achieve this milestone and buying a home with my hubby earlier this year, I can tell you the financing process ranges from an open-and-shut fairytale to a zany rom-com adventure where you’re not sure what’s gonna happen next. While it’s inevitably a happy ending (at least for our clients)we caution that surprise twists are rarely a good thing when it comes to home buying. So we’re gonna share how you can keep the process drama-free. Here’s the two part recipe:
That means with each other, as well as, your finances. Get it ALL out in the open. Have you had “the talk”? No, not the talk about having kids or your romantic pasts or prior convictions. The talk about your debts, income, assets, and your FICO score. Yeah, it’s time to drop the F-bomb.
Get on the same page with your home search too. It’s important to find out where you agree on your future home…and (even more important) where you disagree. Don’t take the easy way out on this. Uncovering those misalignments is crucial.
Side note: There are a lot of steps in shopping for a home that could arguably be called “the fun part”. This. Isn’t. That.
So while it may not be fun, you can take some emotional distress out of this process by organizing a needs vs wants list. It’s your decision whether you want to create your lists independently and then reveal…but we suggest making a safe word in case the convo gets too hot. This is also where you find out if your significant other has that Dom Perignon taste but realistically you’re on a Miller High Life budget. Reining in these mis-expectations is critical…and as you’ll see in the next section, sooner=better.
Not only is getting your first mortgage together about having some tough conversations, but it’s also about having them early. Procrastinators beware because we strongly recommend doing this before tying the knot. Now’s not the time to hide from hurdles like bad credit or debt.
We can tell you from experience that this is the stuff that may get in between you and your first home together. And we can assure you that most of the problems that might be deal-breakers late in the mortgage process were once solvable IF the homebuyer(s) acted at the right time.
Part of the prep is asking for help. There are pros that specialize in all of the areas mentioned above: loan officers (ahem), real estate agents, pre-marital counselors, grief & trauma specialists. When it comes to the biggest purchase that most couples ever make (omg we’re so cliche), getting a professional involved could be the difference of thousands of dollars, getting your offer accepted, and potentially avoiding some major pre/post marital arguments. Life has enough surprises where there’s no professional guidance available…so don’t make it unnecessarily tough on yourselves. Remember, there are no bonus points awarded for difficulty when buying a home.
So, with that in mind, here are some mortgage questions that are common amongst couples…especially when they’re shopping for their first home:
Q: Do we need a 20% down payment to buy a house?
A: No, there are many options for homebuyers with far less down payment needed…for example FHA loans need as little as 3.5% down. However, most loan programs will require mortgage insurance (also known as PMI) if the down payment is less than 20%. Keep in mind that mortgage insurance will add to the total monthly payment, but it doesn’t always have to be paid for the life of the loan…plus refinancing the loan after some equity is built up is a common way to ditch PMI.
Q: When qualifying for a mortgage, can my spouse’s income be used, but not their credit score?
A: Unfortunately, if you wanna include the wifey or hubs income for the loan, the lender needs to take the good with the bad. That includes income, assets, debt, and credit. So, if their credit score is low, it may impact qualifying. Keep in mind, lenders don’t average credit scores of all borrowers – they use the lowestmid-credit score.
Q: If the down payment for our home is coming from a relative as a wedding present, what do we need to know?
A: When receiving a gift that’ll be used towards a down payment, the timing of the gift and the way the funds are transferred are important. If the funds haven’t been transferred 60 days before escrow opens on the new home, it’s best for the family to wire the funds directly to escrow. Otherwise there’s more scrutiny on the donors bank accounts which is a hassle that can be avoided. Unfortunately, many couples (and donors) find this out the hard way.
Q: If we’re in the process of relocating and starting a new job, is it possible to qualify for a mortgage?
A: You can qualify based on the compensation of the new job. In many cases you just need a signed offer letter from the new employer.
… remember that people, homes, and loans are all unique. If you’re looking for more info on financing your first home with your significant other, check out our essential guide here and for general mortgage questions, take a look at our learn page where we cover a variety of home loan topics and try our best not to sound like your mama’s loan officer.