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My fiancee and I are interested in buying our first house and are beginning to go through the process. We'd like to put 20% down to avoid PMI and are thinking ideally a 20-year mortgage. Between my various accounts I have enough for the down payment and closing costs (about $65k in total). I have some negative marks in my financial history though, so she has a better credit score -- hers is consistently 800+ and mine varies from as low as 711 to mid-high 700s depending on the report.

My question is, due to our different financial situations, does it make more sense for my fiancee to go through the mortgage pre-approval and application, or me, or both of us? From what I understand, both the cash-on-hand and credit score will make a difference in our rates, but am not sure if one matters more.

For the sake of this question, let's please negate the potential fallout if the relationship ends. That would be an unfortunate situation regardless of how the mortgage is set up, and I know is worth considering, but I'd like to focus on the financial aspects only.

Our situation more exactly:

  • House:
    • Price range: $200k-$250k
    • Mortgage length: ideally 20yrs or less
    • Down payment: 20%
    • Property tax rate in my area: ~2%
  • Her details
    • Savings: ~$5k
    • Income: ~$45k/yr
    • Debt: ~$12k car loan, ~$20k student loans
    • Credit score: 800+
  • My details
    • Savings: ~$35k in bank, ~$30k in mutual funds
    • Income: ~70k/yr
    • Debt: none
    • Credit score: From 711 to 785 depending on the report, with most numbers in the lower part of that range. I missed some utility payments about 5 years ago and I think the variance is because some reports don't have knowledge of that.

Please let me know if any other information would be helpful. I consider myself relatively financially literate but buying a house feels a lot more daunting. Thanks for your time.

  • Mind telling us if your employers offer a 401(k), and if so, do they offer a match? – JTP - Apologise to Monica Apr 5 at 16:56
  • Good question - we both have employers with 401(k)s with up to a 4% match. We are both contributing enough for the full match. I don't want to dip into our 401(k)s for the home purchase, but for what it's worth, I have about ~$50k in mine and she has I think ~$10k-$15k. We're both in our early 30s. – rotanimod Apr 5 at 17:05
  • Also I asked this specific question because it's what we were debating most recently. But I'm certainly open to general advice or a frame-challenge here on what the best course of action is. – rotanimod Apr 5 at 17:14
  • Since this is your fiancee, why not just solve the problem (and avoid other potential pitfalls) by getting married before buying the house? – jamesqf Apr 6 at 17:40
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Her income $45K.

The best loans are written to a standard of 28/36. 28% of one's income goes to PITI, principal, interest property tax, insurance. 36% includes that, along with other recurring debt. Presumably, the S/L fits into that.

$45K * .28 /12 = $1050. Even with tax on the lower end, say $300/mo, that's $750 to spend on the mortgage. A $200K mortgage will cost $1200 at a 4% rate for 30 years. That's too close for comfort.

But, together, you have far more income that required for this house, the $250K house, with 20% down.

A 711 credit score doesn't bother me. And to qualify, the second income is far more valuable than the downside of what you think is a low score.

I would walk into a local bank branch and ask for their advice, without applying, no credit check, yet. See what they tell you.

I'm more concerned about the desire to go 20 years vs 30. The difference is just over $250/mo, but I'd suggest there are better uses for it. What the better use actually is, depends on your risk tolerance.

My preference is to boost your retirement savings, push the % going into the 401(k) as high as you can. If you are hesitant to lock it up, then build the emergency account to 6 months living expenses, and then pay the S/L off faster with extra payments. Student loan interest tends to be higher than mortgage interest, and paying off that $20K will free up money you can then use for other goals.

At any point, if you are on track with savings and debt free, you can choose to start paying the mortgage ahead. But going into this new situation, having the higher required payments is something I'd avoid.

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    Just going and talking to lenders is a great step, they can give you good estimates based on your specific scenarios, I have had hundreds of scenarios run over the years and only have an actual credit pull to do a proper pre-approval/application. – Hart CO Apr 5 at 19:14
  • Thanks. So you advocate for the 30 year despite the slight APR increase, since we can always pay that down sooner? Just running the numbers and seeing an extra ~50k in interest paid over the lifetime of the loan is what turns me away from that. – rotanimod Apr 5 at 19:59
  • Yes. Take the difference and track it. You’d find that if deposited into an S&P ETF, in 20 years, the account balance will be far greater than the remaining mortgage owed. I retired in 2012, and even with an awful decade in the 2000’s, I was better off for a longer term mortgage and investing. (Again, my opinion, my experience. Other respected members would suggest you deposit to the matched 401(k) only, and pay off all debt ASAP. If that helps you sleep at night, do it.) – JTP - Apologise to Monica Apr 5 at 20:48
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A long time ago I was in a similar situation. We were looking at two places: a townhouse and a single family house. Both incomes would have been needed to qualify for the larger mortgage, which would have required both of us to be working even when we had kids. The decision we made was to only purchase what we could afford on one income. That meant we purchased the townhouse instead of the single family house a mile away. The requirement for only one income made applying easier, and made future financial decisions easier.

Your local bank where you are already a customer should be able to help show you options. This is a example of when a pre-qualification is useful. With a pre-qualification they don't do a hard-pull credit check, they don't ask for you to prove your income, and they give you a ballpark estimate. That gives you examples that you can play with to determine if you need both incomes and histories to make the numbers work.

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I am surprised the OP even needs to post a question here, as any mortgage lender would happily give them the thumbs up.

700+ credit score with 115k in income, 70k in savings, 65k in retirement savings, and 32k of debt, is more than good enough for 300

I am getting the sense that you are living in a relatively expensive part of the country (US of A). And your target area for that 200-250k starter home is in a relatively out of the way area.

I am going to guess 200-250k won't buy you much house and the neighborhood is probably very very average.

You should consider buying the best location you can afford, not the largest house you can afford. And you can actually expand the top end of your range a bit.

You can look at 300k with no problem.

Remember.. you are in your 30s, your salary will expand quite predictably over time..

  • I agree that between them, a bank will lend them even more than you suggest. As I've been know to say, the bank is happy to sell you the rope to hang yourself. They would qualify for $400K+. Why do you make any of the other assumptions? A $250K house is a bit under the median which just hit $300K, but there's nothing wrong with staying well under what one can afford. – JTP - Apologise to Monica Apr 5 at 19:26
  • @JoeTaxpayer: because.. what both of us should have asked is where are they looking. Given their income and their age, it is likely that are in an above average area. And if that's the case, 200-250k won't by much, even in a lousy area. And real estate is all about location. If you buy in a lousy location, you will regret it. I have seen that happen to many many of my friends. Shocking how many first time buyer lose money on their starter home. – sofa general Apr 5 at 19:33
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    We're in Madison, WI. The main reason I have against taking a higher loan is that a 20% down payment, plus closing costs, will wipe out nearly all our savings. That scares me. Also, honestly, I just don't like the thought of having that much debt. (I'm coming to terms with that though, as it's going to happen either way to some degree.) – rotanimod Apr 5 at 19:57
  • @rotanimod: Never been to Wisconsin. Did a bit of googling. the housing cost of living is not super high, but not exactly cheap. I would prioritize location over everything else. – sofa general Apr 5 at 20:11

protected by JTP - Apologise to Monica Apr 6 at 0:39

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