Post-wedding palace

Post-Wedding Palace

Saying ‘I Do’ To Home Ownership

Story by Randi Jo Gause

It happens in every fairytale – the newlywed prince and princess ride off into the sunset and live happily ever after in their castle. But even couples beneath royalty need a palace to return home to after their fairytale wedding. For couples heading to the altar, there has never been a better time to prepare for the journey to home ownership.

“Interest rates are at historic lows and with homes at affordable prices, it’s a great time to buy,” explains Monica Barton, First National Bank Alaska’s home loan specialist.

But without proper education and preparation, couples can quickly watch dreams of home ownership go bankrupt, which is why we’ve recruited local experts to help smooth the path to first time home buying.

Put Your Money Where Your Mouth Is

Discussing finances with your fiancé may not exactly be pillow talk, but it will help align your future goals for homeownership. Compiling a wish list of home features and preferred neighborhoods, and plotting out a timeframe when you’d like to buy a home will allow you to estimate a realistic price range expectation.

You can also develop financial goals based upon your joint income, savings, debt and budget, in order to prepare for a down payment and monthly mortgage.

“If buying a house is on the agenda, then start saving now for that down payment and include it in your overall budget,” advises Colleen Harrington Baer, Alaska USA Mortgage Company’s senior mortgage loan originator. “If you have this conversation before you get married, you will be more aware of each other’s spending and saving habits.”

Build a Nest Egg

Even if you don’t intend to buy for another year or two, jumpstarting your savings will place you in a better financial position down the road.

“Often, the single impediment to home ownership is the down payment and closing costs for any couple,” explains Jim McCall, officer of housing relations at Alaska Housing Finance Corporation. “Some programs offer zero down options while others may require as much as five percent or more down.”

In addition to a down payment, you also need to factor in closing costs, which tack on another two to seven percent of the home price. Buyers can often negotiate for the seller to pay both closing costs and realtor expenses, but this isn’t always the case.

Saving for a down payment can take up to a several years, which is why it’s crucial to start earlier rather than later. Some banks also offer the option of setting up a bridal mortgage registry that allows family and friends to deposit monetary wedding gifts directly into your account.

Clean Financial House

This is the time to assess your financial report card: your credit score and debt-to-income ratio. Both impact your ability to qualify for a loan, so you may need to sweep up outstanding debts and build up additional credit if necessary.

“Credit scores help determine rates, down payments and loan programs,” emphasizes Harrington Baer. “The better your score, the better program and fees you get; the lower the score, the higher the fees and rates.”

Identify credit kinks by obtaining a copy of your credit score online or through a lender. Credit scores range from 300 to 850, with lower scores posing a higher credit risk, and higher scores indicating low credit risk. Ideally, you’re score should range from 720 and 850 (good credit risk) to 600 and 720 (moderate credit risk) in order to qualify for the lowest interest rates.

Determining your credit score early on allows you to proactively address any credit issues before they compromise your loan approval. You can also identify disparities between each of your credit scores to gauge whether you’re better off applying for a loan jointly, or under the individual with a higher credit score.

Your debt-to-income ratio also offers lenders a look at your financial stability.

“Lending professionals use the phrase ‘debt-to-income ratio’ to determine if you can handle a new house payment,” explains Barton. “If you take all of your current monthly debt plus the house payment and divide it by your gross monthly income, you want the ratio to be at 45 percent.”

Being aware of your debt-to-income ratio will help you identify if you need to square away outstanding debts in order to qualify for a home loan, and decide whether it’s the right time to make big purchases. Financing big-ticket items such as a new car or wedding and honeymoon expenses can affect your debt-to-income ratio, and in turn, your ability to qualify for a home loan.

Choose Your Home Team

Eventually you’ll be ready to find a lender to coach you through which loan programs you qualify for.

“Simply think of a pre-qualification letter as adding strength to your offer once it is submitted to the seller as it will denote your credit, income and debts have all been reviewed,” explains McCall.

The recent $8000 tax credit for first-time homebuyers has expired, but several lenders still offer lower down payments and interest rates for first time homebuyers. AHFC’s first time homebuyer loan has been in the lower 4 percent range recently, but is subject to change on a daily basis.

The lender will also determine the loan term you qualify for. Fixed rate mortgages are typically offered in 15-, 30- or 40-year terms, and are ideal when interest rates are low. Adjustable rate mortgages offer a lower initial rate that adjusts periodically.

“Knowing what types of loan options are available and what the qualifications of those programs are will help you determine whether or not you are ready for homeownership right away or if you need to set up a plan to reach the goal of homeownership,” adds Barton.

A Lifetime Investment

Owning a home is one of the biggest and smartest investments you will ever make as a couple. It’s your first step towards long-term financial security, and the sooner you get started the better!