5 Things Newlyweds Need to Know About Buying Their First Home

Owning a house is most every married couple’s dream. Rents can be nearly as expensive as monthly mortgage payments, and building a nest under your name can make financial sense for your family.

Homeownership has many moving parts, making it too easy to make a mistake. Choosing the wrong neighborhood, property or mortgage can start your marriage on a low note. Know these five facts before shopping around to avoid regret.

1. Only One Person Needs to Be on the Mortgage

Marriage usually makes homeownership easier because combining incomes and assets increases creditworthiness. However, you don’t have to take out a mortgage together. Applying for a home loan individually can be beneficial and strategic under certain circumstances.

Not putting your or your spouse’s name on the mortgage and the deed can improve the chances of qualifying for favorable deals. Taking this route makes financial sense when one of you has significantly lower credit scores than the other and carries considerably more debt.

Credit scores don’t work like couples’ incomes, which supplement one another to boost purchasing power. If you apply for a mortgage together, the lender will make a credit decision based on the individual with lesser credentials. Therefore, the person with better credit doesn’t influence the interest rate and other negotiable loan components.

In joint mortgages, lenders consider spouses’ debts and incomes when assessing mortgage eligibility. Someone who is heavily indebted will inflate the debt-to-income ratio and turn you into a riskier borrower.

The downside to taking out a mortgage alone is the mortgage holder views the name on the document to be solely responsible for the debt. The exception is when you live in a community property state, which considers both parties in a marriage to have equal responsibility for and ownership of the house — even though only one person is on the mortgage.

2. Contingencies Are Waivable

Real estate contingencies are clauses in an offer that allow you or the seller to withdraw from the contract without financial repercussions. The most common types protecting your best interests are the home inspection, title and appraisal contingencies. If the seller fails to satisfy any of these conditions, you can retrieve your earnest deposit and move on.

Considering contingencies can make or break a deal, they make excellent bargaining chips. When shopping for a house in a market that sellers control, waiving one or many of these requirements can help you beat more demanding buyers to the punch.

The drawback is that you may overpay or buy a money pit. Say you forgo your home inspection contingency and choose not to do a thorough plumbing check. You may miss obscure red flags, costing you tens of thousands of dollars in future repairs. For example, a water heater in a location with high-quality water and a stellar maintenance history lasts for 15 to 18 years but may succumb to premature failure without an expansion tank.

3. Private Mortgage Insurance (PMI) Doesn't Protect You

PMI is coverage you buy when you borrow over 80% of the property’s sales price. If you don’t put down 20%, you must pay this expense until your mortgage principal dips below 80% of your house’s original value.

This insurance protects your mortgage holder — not you — in case you default on your home loan. This expense can be as high as 6% of the amount you borrow — a hefty penalty for not making a sizable down payment.

4. Some Gifts Are Unacceptable

Monetary donations can reduce your expenses. You can use these funds to put more money down or settle the closing costs you usually pay out of pocket. If you receive substantial cash gifts from wedding guests — something more people no longer consider taboo — you can use them to beef up your savings and qualify to buy a house sooner rather than later.

However, mortgage lenders and nonconventional home loan guarantors — such as Fannie Mae and Freddie Mac — can be extra selective about the donors you can use. These entities don’t mind you using gifts from relatives, such as blood, marriage, adoption or legal guardianship, as well as grants from nonprofits and government agencies. Donated funds from employers and friends may be unacceptable.

Moreover, you may have to contribute a certain percentage of your down payment with your hard-earned savings. This requirement ensures you have skin in the game when taking out your mortgage.

If your or your spouse’s parents are downsizing, you may also buy their house below the market value and use the discount as a gift to save on your mortgage. This donation is a gift of equity because you gain free equity out of the gate by not having to put any money down.

If the discounted house is too big for your needs as newlyweds, you may have to borrow a more significant amount to afford it and pay more interest in the long run. It may be worth it since you need more space when you welcome a child. In the meantime, renting out spare rooms should help cover your mortgage payments.

5. Grants May Come With Strings Attached

First-time homebuyer grants help you cover your down payment and closing costs. While they’re free money, some sponsors expect something in return.

Mortgage lenders that offer grants extend the privilege only to those borrowing from them through specific loan programs. This requirement naturally limits your options.

Thankfully, you may use grants from multiple sources. Each homebuyer assistance program has unique eligibility requirements — some even require prepurchase and postpurchase education classes — so simultaneously qualifying for many can be challenging.

Begin Your Married Life as a Homeowning Couple

Married couples face fewer obstacles to homeownership. Maximize your advantages to buy your dream home for the least amount and start your marriage in a strong financial position.

Author Bio: Oscar Collins is the editor-in-chief at Modded, where he writes about a broad spectrum of topics. Follow him on Twitter @TModded for frequent updates on his work.

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