One of the biggest investments most couples make will be a home purchase. Sure, it’s the place you’ll live and share your lives together, but no matter how much you think of it as simply your home, it’s still an investment that will have a large affect on your finances and your financial plans for years to come. It’s good to put some forethought into the process so you know you’re putting yourself in the best situation to benefit both you and your partner/spouse.
Not Married Yet?
In most states, whether or not you’re married doesn’t have an effect on your home financing application. However, if you live in a community property state (AZ, CA, ID, LA, NV, NM, TX, WA and WI), it can make a big difference. This section is for you!
Several years ago, I had a gay couple come to me to just do some general planning for a future purchase. They were getting married in a month and a half. A date was set and the plans were in motion! Because of the reasons we’re about to discuss, they realized once they got married it would be exponentially harder for them to buy a house.
They shifted their buying plans and now we had to fast track the purchase process to get them under contract and closed prior to the wedding date. It took them a bit to find the right property, but they closed the Thursday before their Saturday wedding! It was a whirlwind month for them, but it saved them from hitting the pitfalls of being married in a community property state.
Depending on the loan type, getting married could affect your ability to get approved. In a community property state, the assets and debts of married couples are mutually shared. If just one of you would be on the loan (say, because the other has bad credit), and you’re looking to obtain an FHA, VA, or rural development loan, the debts from the spouse who’s not on the loan would still go into your debt ratios. This means, for example, you’re not just qualifying with your car payment and student loans, you’re adding in your new spouse’s car payment, too, and that could make your debt load too high.
In addition to the effect of adding your spouse’s debts to your debt load without the benefit of their income, another concern might be if they have large collections on their credit. While you might not think of these as monthly payments that would increase your debt load, some programs will add a percentage of outstanding collections to the ratios — so this could be a surprise you weren’t expecting. Other items that could affect the ratios are child support and property expenses on another owned property.
If you’ll be doing any other type of loan like Fannie Mae, Freddie Mac, or a jumbo loan, your marital status won’t play into the ratio calculation. These loan types don’t look at the spouse’s debt even if you’re married.
About the contributor:
Shawn Muncy, Branch Manager, Delmar Financial Company
Shawn Muncy is the branch manager for Delmar Financial Company in Austin, Texas. He has been a mortgage loan originator for 16 years. Shawn lives with James, his partner of 21 years.
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