Buying a new home is one of the biggest commitments that you can make in life. It’s probably going to be your biggest purchase and you’ll probably spend the next 15 to 30 years paying off the mortgage you took out. If you are buying a new home with your partner, then you are making an even bigger commitment. However, you might find that buying a home with your partner might be more difficult than you thought. You might think that having two incomes can only benefit you, especially in the process of applying for a mortgage, but there are a number of things that could hold you back as well. Here are a few potential concerns for couples looking to buy a home together:
You just got married
Although it varies from state to state, most of the time you’ll find that real estate is considered to be marital property. This means that the name that appears on the deed and the mortgage is very important. Joint ownership is a good idea, as it helps to provide extra stability if a tragedy occurs to either you or your spouse. However, things can get tricky if you’re the one that paid for the real estate and both of your names appear on the deed, if you happen to go through a divorce in the future. While this is not a pleasant thing to think about, it’s something you should consider when determining whether both names should appear on the deed and mortgage.
You or your partner has bad credit
It doesn’t matter if one of you has absolutely incredible credit; if the other has poor credit, then it could hurt your chances of qualifying for a mortgage or getting the mortgage terms that you want. This is because the mortgage lender will use the lower of the two credit scores. The lender may still offer you a loan if one of your credit scores is bad, but it will most likely be a smaller loan with higher interest rates. You should sit down with your partner to look over both of your credit reports before applying for a mortgage.
If one of you has poor credit, then you have three options:
- Hope that you qualify for a smaller loan with high interest rates
- Work on improving your credit scores before applying for a mortgage
- Leave the person with the bad credit off the mortgage application
Leaving the person with the bad credit off the mortgage application is a risky move, especially if you’re not married. If you leave each other or get a divorce, then the person not on the mortgage isn’t legally obligated to help with payments.
You or your partner doesn’t meet the income requirements
Mortgage lenders will review the applicant’s last two years of W-2s and tax returns. If either of you is working as an independent consultant or has just started a business, you’ll need to be able to prove that you have had steady income throughout those last two years to qualify for the loan. If one of you can’t prove that you have had steady income over the past two years, then your income probably won’t qualify for the mortgage.
You or your partner’s expenses and debt are too high
In order to qualify for a mortgage, you’ll need to be able to prove that you can afford the monthly payments. Lenders will take a close look at your debt-to-income ratio, which they will determine by checking your income as well as the items on your credit report. You’ll typically need to have a qualifying ratio that’s less than or equal to 43 percent. If either debt-to-income ratio is higher than that, you may not qualify. You should sit down with your partner when you first figure out your budget to determine what your debt-to-income ratio is. If either of your expenses or debts are too high, you may want to hold off on applying for a mortgage until you can pay down your debts a little more.
If you are planning on buying a home with your partner, then you need to be aware that both you and your partner’s financial situations will be taken into account by lenders, and that the risk is usually determined by the person with the worse financial background. Because of this, getting your finances straightened out before you apply for a mortgage is a smart idea.