Purchasing a House as an Unmarried Couple

Let’s face it. The idea of splitting the bills, chores, and other various expenses that come with owning a house can sound super appealing. If you’re already in a relationship, owning a home with your significant other seems like a no brainer.

A 2013 study found that one in four couples between the ages of 18 and 34 bought a house together before they were married. With all the signs pointing to “BUY IT!”, we still recommend that you consider the following factors before leaping into unmarried homeownership.

Who Will Apply for the Mortgage?

As you may know, a good credit score can go a long way when getting approved for a home loan. If you or your partner have credit that’s in bad standing, this could affect your chances of approval. Lenders will look at your individual scores from each reporting agency first, then take the middle score. The lowest score between the two applicants will be the score used to determine approval and mortgage interest rate.

So, let’s say you have excellent credit, but your partner is working toward a higher score. Your partner could be on just the title, not the loan. This will, of course, come with additional risk as to the debt of the home financially falls on only one person.

How is the Property Titled?

There are three general title options homebuyers should be aware of, especially if they are buying a home unmarried.

Sole Ownership: Only one name is listed on the deed, and as we mentioned above, this persona has all the rights and responsibilities of homeownership.

Joint Tenancy: Each person will own 50% of the property. If one tenant were to die, their share of the home would automatically transfer to the other tenant. The right of survivorship also prevents estates or relatives from taking the house in the event of your partners’ passing.

Tenants in Common: This allows for unequal ownership. For example, you could own 75% of the property, and your partner owns the remaining 25%.

Do You Have a Backup Plan?

As uncomfortable as it may be, it’s crucial to discuss what will happen to the property if you and your partner were to split up or if one of you were to die.

In the case of death, choosing the right title for you and your partner could make all the difference. However, ending the relationship brings on more uncertainty for ownership. Forbes recommends unmarried couples agree to a partnership agreement or a homebuying prenuptial. This will help address issues such as:

  • Who is contributing financially?
  • How will the mortgage be paid?
  • What happens if you sell the home?
  • What if the relationship dissolves?

By agreeing beforehand, any conflict during a potential breakup could be settled without litigation or mediation.

No matter what your plans may be, we’re here to help! Contact a Mortgage Advisor today for more information.

Increase Purchase Power

Purchase Power

With a limited inventory of affordably priced homes and a high demand, searching for a house can feel exhausting. Although the competition and dreaded multiple offer situation may make you want to put off purchasing a home until the market slows, 2020 is actually a great time to buy. Here’s why.

In the Spring, mortgage rates hit historic lows. Homebuyers this time last year were locking in rates around 4.5%, and currently, rates remain steady in the 3% range. Considering the vast majority of buyers finance their homes, mortgage rates directly impact most people’s purchasing power! But how exactly do interest rates affect how much home you can afford?

The lower the rate, the more purchasing power you have which means you can get more house for the same monthly payment. With a lower interest rate, more of your money goes directly to the principle of the loan—maximizing how much home you can afford and minimizing the monthly payment. With each 0.125% shift in mortgage rates, your buying power changes, and a 1% difference could add $30,000 to your budget. Who doesn’t want more house for the same amount of money?! Even if you haven’t saved the full down payment you want, a low-interest rate will likely translate into ample savings on your monthly payment.

Rates are predicted to stay around 3% through 2020, so if you are on the fence about buying, it may be in your favor to start looking now. These historically low rates will allow you to stretch your dollars and give you more flexibility to find a home that is perfect for you.

Contact us today!

Qualifying for a Mortgage with Student Loan Debt

Qualifying for a mortgage with student loan debt is a common obstacle among the American Millennial population. Millions of American Millennials (born between the early 1980’s and early 2000’s) are faced with high amounts of student loan debt but are eager to purchase their first home and move on to the next stage of their lives.

According to a study by The Institute for College Access & Success, the average amount of student loan debt in the United States is $28,950, and some states have an average of over $33,000. There is no doubt that student loan debt can have a negative impact on these young adults looking to purchase a home in the next few years. However, the situation may not be as dire as it seems.

There are two main ways borrowers can lessen the impact of student loan debt on their finances:

1. Fix or improve Credit/FICO score

Making a late payment, or missing one altogether can negatively affect a borrower’s credit score, limiting their ability to qualify for lower interest rates and loan programs. On the other hand, on-time student loan payments can help positively increase a borrower’s credit score and help build their credit, increasing their ability to qualify for more affordable loans. Keep in mind these steps to improving credit.

2. Decrease Debt to Income (DTI) ratio

When qualifying borrowers for a loan, Lenders do not focus on the total debt burden but instead look at a borrower’s Debt to Income Ratio (DTI ratio). The DTI ratio is a percentage which compares the sum of all of the monthly payments a borrower makes, divided by their total gross monthly income. The lower the ratio, the easier it will be to qualify for a loan. If your borrowers’ DTI is higher than 36%, they may want to consider taking steps to reduce it.

  1. Increase monthly payments- extra payments can help lower overall debt quicker
  2. Avoid taking on more debt- reduce the amount charged to credit cards and avoid new loans
  3. Postpone large purchases until you have more savings
  4. Recalculate DTI monthly to keep track of your progress

Important: Get Pre-Approved

Meeting with a mortgage banker get pre-approved will help the borrower understand potential that issues might occur when purchasing a home. This will also help them to recognize their goals and know what to shoot for when saving money and reducing their DTI ratio.

Don’t let your first-time buyers perceive student loan debt as a major obstacle to qualify for a mortgage. Have them meet with a Loan Officer from “The Polder Group” early in the process to alleviate concerns, and obtain an accurate picture of their ability to qualify.

 

POTENTIAL SAVINGS FOR PROACTIVE HOMEOWNERS

Homeowners financing a home with less than 20% down payment are required to pay for mortgage insurance. While lenders must automatically cancel private mortgage insurance (PMI) when the outstanding loan balance drops to 78% of the home’s original value, many homeowners are unaware that they can request cancellation a little earlier; potentially saving them money!

PMI monthly costs vary, depending on the size of the down payment and credit score and can be expensive for consumers. The Homeowners Protection Act requires that homeowners have the right to request their lender cancel PMI once their loan-to-value has reached 80%; much sooner than waiting for it to cancel automatically at 78%. Homeowners that meet the required criteria could potentially save themselves money on their monthly payments.

The Consumer Finance Protection Bureau (CFPB) has been cracking down on mortgage servicers that fail to provide notice to borrowers or have “excessive delays” in processing borrower PMI cancellation requests. If eligible, borrowers can request a PMI cancellation by contacting their mortgage payment servicer.

Unfortunately, PMI cancellation does not apply to FHA or USDA government backed loans. They require payment of mortgage insurance premiums for the entire life of the loan. The mortgage insurance cannot be cancelled; instead, homeowners would need to refinance their loan into a conventional mortgage.

If you or your clients have questions regarding mortgage insurance or other home financing needs, don’t hesitate to contact us. Learn more about potential tax deductions on mortgage insurance premiums.

Tips for successful Homebuyers

The recent National Association of Realtors 2015 Profile of Home Buyers showed 95% of first-time home buyers and 86% of repeat buyers financed their home purchase. Clients in the market for a new home can increase their chances of a successful home buying transaction by following some of these tips.

Check Credit Reports

Credit reports can affect a client’s mortgage rate and ability to qualify for home financing. It’s important they review their credit report for any errors and take measures to boost their credit score if needed. Homebuyers can always check their credit report for free here.

Get Pre-Approved for a Mortgage

Before clients start a home search, always meet with a mortgage lender to get pre-approved. It will not only strengthen their offer, it helps clients understand their buying potential and helps real estate agents define the field of eligible properties that they can afford. Know the difference between a pre-approval and a pre-qualification!

Boost the Budget

Beyond helping clients create a budget for a home within their range, consider also looking for ways that could help reduce some of the costs. Seller or lender credits or grant funds can help offset closing costs or help with larger down payment funds, possibly expanding their search options.

Resale Value

The average person moves 11.3 times in their lives so it’s also important that clients consider the resale value when looking at homes. While a client may purchase their home as a long-term investment, keep in mind that they may one day need to sell it.

Buying a home is a major financial undertaking. Summit strives to educate clients and referral partners on all aspects of a home finance to help alleviate concerns and ensure a smooth home financing process. Contact us today!