Getting Married? Time to Pop the Second Big Question

We all know about popping the big question. If you are planning your wedding, it means you have moved past that stage. There are a multitude of details to consider when planning a wedding and setting up a new life. And there is nothing more important than the second big question:

Should we purchase or rent our first home?

The truth is that many who are getting married are already homeowners and thus there are variations to this question.  In this article we will start with the most basic of questions – renting vs. owning -- and then move to additional housing questions that newlyweds face. 

Purchasing or renting? 

There is no doubt that most couples aspire to own a home in the long run. Home ownership is considered the American Dream because it brings so many advantages to the table.  Here are just some of the economic and social advantages of owning.

Economic Advantages.  Owning has always been the number one way to build wealth in America.  The Federal Reserve Board has estimated that home owners have over ten times the average net worth of renters.  Why?  For one, all of your rent payment goes into the pocket of your landlord, while part of your mortgage payment goes to pay off what you owe, which enables you to build equity every month.  A home also will typically go up in value over time and provide a tax deduction and inflation protection, while rent does not provide ownership of any asset nor any tax deduction.

Social Advantages.  Owning provides security for your family, as you don’t have a landlord who can tell you to move and the stability means that you are part of a community which provides lasting relationships.  Neighborhoods of owners tend to be safer and provide better lifestyles to raise a family.  Plus, you have the freedom of choice with regards to improving your property and this can mean anything from a swing set in the backyard to painting a nursery for your first child.

Seeing the advantages, does this mean that everyone should go out and purchase a home right after the wedding or even beforehand? While many do make this decision, it does not mean that home ownership is right for everyone. Here are a few more questions you must ask yourself before you can determine if purchasing a home should be a first step in your new life:

Are you staying local? If you think you might be moving out of town in the near future, then homeownership probably does not make sense because owning is a long-term proposition.  

How are your finances?  Are you starting married life with a lot of debt and a low credit score? It will make much more sense for you to pare down your debt first before you move to purchase a home.

Do you have savings?  Savings is not only important for a down payment. Cash reserves are very important for emergencies as well.  Down payment requirements can vary significantly. For example, if one of you is active military or a veteran, you likely can take advantage of the VA’s no down payment mortgage option.  There are many other options which exist to lower the down payment required and working with a lender before you start house hunting makes all the sense in the world in this regard.

Speaking of the down payment, it is not unusual for some who are getting married to cut back the cost of their weddings and/or honeymoons and use more of their cash gifts to help them move closer to being able to purchase a home.

What if one of us (or both) already own a home?

Especially with many couples getting married later in life, it is more likely for one or both of the newlyweds to own a home. In this case, the renting question typically gets thrown out the window and other questions might arise.  For example, if one spouse is renting and the other owns, then one would expect that both would move into the house owned by that spouse.  On the other hand, what if both own a home?

• The newlyweds could move into one home and sell the other. Which house is kept might be determined by location, lifestyle and finances, such as how much equity is in the home.

• The newlyweds could move into one home and rent out the other. This action might be an option if the home you chose not to live in has no equity.  As the renter pays your mortgage over time, you will be gaining equity in the long-run.

• The newlyweds could sell both home and trade up for a larger home. If children are expected in the near future, purchasing a larger home may be the right choice.

Again, there are a multitude of factors to consider with regard to all of these choices. This is why it makes sense, not only for newlyweds to have a wedding advisor, but also a financial advisor, real estate expert and mortgage advisor on their team.


Special Real Estate Report: Scores to Get a Boost?


Credit Reporting Changes

Because of improved standards for utilizing new and existing public records, the three major credit reporting companies are now excluding all tax liens from credit reports. That means some scores will head higher. Credit scores, notably those from FICO, one of the largest credit scoring companies, generally range from 300 to 850. A good credit score generally is above 700, and those over 760 are considered excellent. Credit reporting and scores play a key role in most Americans’ daily life. The process can determine the interest rate a consumer is going to pay for credit cards, car loans and home loans — or whether they will get a loan at all.

The new rules come following a study by the Consumer Financial Protection Bureau that found problems with credit reporting and recommended changes to help consumers. Incorrect information on a credit report is the top issue reported by consumers, according to the bureau. Last July, credit reporting companies removed nearly 100 percent of civil judgment data and about 50 percent of tax lien data from credit reports. Effective mid-April, the rest has been removed. LexisNexis Risk Solutions predicts that about 11 percent of the population will have a judgment or lien removed from their credit file, according to the company’s own estimate. Once that information is stripped out, credit scores may go up by as much as 30 points overall, LexisNexis found. LexisNexis also provides lenders with data to make decisions on consumer loans.

Other industry groups have said these changes will have less of an impact. “Analyses conducted by the credit reporting agencies and credit score developers FICO and VantageScore show only modest credit scoring impacts,” Eric Ellman, a senior vice president of the Consumer Data Industry Association, said in a statement when the changes were first announced. The association represents Equifax, Experian and TransUnion, the three largest credit reporting companies.

Source: CNBC