First Home Together: 5 Money Vows to Make
When buying your first home is your post "I do" goal, you and your significant others' credit-related financial moves must be in sync.
First comes love, then comes marriage, then comes…a mortgage?! For couples taking that path, buying your first home is no less complicated than organizing a wedding.
Securing a mortgage loan is the most crucial—albeit not most romantic—part of home-buying. It impacts your price range and monthly payments through, most likely, your 30-year anniversary.
But well before reaching that marriage milestone, home ownership is financially and emotionally rewarding. It can also significantly reduce the risk of divorce for couples married 10+ years, according to the National Healthy Marriage Resource Center.
Reaching that magical moment of getting house keys at closing involves making big promises—together. So, just as you declared your love and commitment on your wedding day, start your first dance toward home ownership with the following financial vows.
"We vow to cozy up with our credit reports."
Even a small FICO credit score point difference could smack you with tens of thousands in additional interest owed on a mortgage. Adding to the stress, credit reports may contain errors. In fact, a Federal Trade Commission study found one in five consumers had an error corrected. In a follow-up three years later with consumers with unresolved disputes, nearly 70 percent still had inaccuracies.
That's why those tying the knot should be prepared to scrutinize a lot—of credit history, that is. As early as possible, request each of your credit reports from all three credit bureaus and begin scrubbing any errors, such as an incorrect amount or credit limit.
"We vow to clean up our credit."
While married individuals keep separate credit reports (and obtaining a mortgage loan under just one high earner's name is possible), bad credit and big debts will impact you both. Lenders use the lower of the two credit scores on couples applying for a mortgage together.
Identify areas of your credit history that need work, and take steps such as paying off delinquent accounts, paying everything on time (for better or worse!), and committing to eliminate credit card balances and other debts.
Still engaged? Avoid wedding and honeymoon extravagances. Simply getting married doesn't harm your credit; putting a $100,000 wedding on plastic does.
"We vow to maximize (but not over-maximize!) our credit."
It's not just wedding expenses causing a hot credit mess. Financing a new car or complete bedroom set during house-hunting season is also not a great idea. Even switching credit cards to joint accounts or applying for a new one together could cause a score dip. Increasing existing cards' credit limits just before applying for a mortgage, however, can tick up that score.
Mortgage underwriters use a debt-to-income ratio (the percentage of your income that goes toward paying debts) to determine how much additional debt, if any, a household can handle.
"We vow vigilance on the pre-loan process."
Obtaining a pre-qualification letter is pretty simple, but taking the extra steps to get pre-approved will give a seller mulling over an offer confidence that the deal will make it to closing. That's because the lender has already checked your credit and verified your job and financial status.
Locking in your mortgage rate is also a must since rates change daily and as a newlywed, your finances may well be tight.
"We vow to time it right."
Home ownership may need to wait at last a few months if...
- Your credit scores need boosting.
- You're paying down other debts.
- You just cleared a delinquency on an account.
- One of you will be changing jobs. (Mortgages require current pay stubs as proof of income.)
- A relative gifted downpayment funds. (Lenders want a recent-deposits paper trail to ensure well-established assets.)
Home-buying delays can be frustrating. But ensuring your financial house is in order will likely make house-hunting more fun, bank accounts healthier, and your union stronger.