Newly Married? A Few Homeownership Tips

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Isn’t it amazing how much time newly engaged couples spend dreaming of their future together, yet do so little to prepare for that bliss? It’s so much fun designing the perfect wedding dress or the spectacular honeymoon, right?

But, as they say, the honeymoon is over when reality sets in and financial decisions are hovering over the happy newlyweds. They tied an emotional knot as well as a financial knot, and if the couple is going to survive married life, there are a few important concepts to grasp about their financial future.

Since two people have essentially become one in terms of buying power, each must update their name change on bank accounts, passports, credit cards, insurance policies, investment funds, drivers’ licenses and, of course, the Social Security office. This needs to be done before any financial transactions take place to avoid any confusion of ownership down the road.

Checking in with their residing state will determine if the couple lives in a community property state, where half of each spouse’s income and assets will be owned by each other automatically. Titles to assets and beneficiaries need to be updated accordingly. Accounts should be set up either as joint or individual as well.

Since buying a home is paramount to most married couples, a thorough review of each person’s credit and overall financial position must be done openly and honestly. Potential red flags can pop up unexpectedly. Red flags can indicate identity theft, but financial institutions typically look for five main groups of problems: notices from reporting agencies, unusual account activity, suspicious personal ID, suspicious documents and alerts from law enforcement or the public.

A credit bureau may notice someone making applications for a large number of credit cards all of a sudden. Unusual activity may include large withdrawals. Suspicious documents could include fake checks. And alerts from the public may involve a family reporting that an older relative has become a fraud victim. This would be the time to correct all of these issues in credit and financial reports that would have a negative effect on acquiring a home mortgage.

Federal law allows people to obtain a free credit report from each of the major credit bureaus once a year, Experian, TransUnion and Equifax. Couples need to check their credit reports for irregularities, or as many experts are suggesting now, people should go ahead and freeze their accounts with these reporting agencies since everyone should assume that their most sensitive information, such as social security number, date of birth and driver’s license, is already on the internet and on the way into criminals’ hands.

Several companies have been hacked over the last few years, including Home Depot, Target and Equifax itself. Consumer advocates say it makes sense to be vigilant, and putting a credit freeze on an account actually blocks access to credit reports. Of course, couples need to lift the freeze when ready to apply for their home loan.

A household budget should also be created together and monitored on an ongoing basis, so that when the time comes to consider buying a house, the path is not strewn with obstacles or surprises. Typically, a monthly mortgage payment should be a little over a quarter of the couple’s take-home pay. This means if their combined annual income is $120,000 per year, their monthly income is $10,000 and they can qualify around a $2,500 per month payment.

Many couples want to jump into home ownership too soon. They fail to consider how much a sizable down payment can help them. For example: a couple doesn’t have 20 percent for a down payment, so they accept private mortgage insurance, or PMI, to help them. A PMI will allow them to put down less than 20 percent, maybe even as low as 3 percent if their credit is good enough. But this isn’t a free service. This private insurance premium is added to their monthly payment to protect the lender until enough equity is built in the home to have the PMI removed. In the meantime, if the couple defaults, the lender is paid. But if the couple had 20 percent to put down on the purchase, they would save this PMI.

Couples should get pre-approved for a home loan before they even start looking for a house. The paperwork is truly endless, so it’s a good idea to get an early start, especially in a tight real estate market when the “good” houses seem to go so quickly. This also allows the couple to know well in advance the price range they can afford, and it saves the time, headaches, frustration and even heartache of finding the perfect house, then discovering it’s outside their budget.

Following these and other smart tips can assure couples find the right dream home. ■

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