#AskanExpert: Does my Income-Based Repayment Affect My Husband Buying a Home?

February 17, 2020CreditBy toptierfinancial

Q. Hi! I have some questions about my student loan. I have the regular federal student loans and I already graduated. We are married filing jointly. I’m going to make my first standard payment of my student loan, but I am interested in applying for an income-based repayment(IBR) program and they already sent me the form to apply and placed me in a forbearance. My husband doesn’t have any student loans. We really need a home and my husband wants to apply for a mortgage in order to buy one.

But my question is, that since he needs to sign the IBR form, is his credit going to be hurt? Is his credit report is going to show the balance of my student loan? How is my income-based repayment going to affect his eligibility of the mortgage? Can I exit the IBR plan at any time?

Dear Reader,

Congratulations on the exciting prospect of buying a house with your husband. The first step toward homeownership is getting your finances in order to determine what kind of housing you can afford together. And I commend you for taking an additional step to explore your student loan repayment strategy in order to ensure you will be able to make your mortgage payments in the future.

If your husband is applying for the mortgage by himself, only his debts and credit report will be reviewed on the mortgage application. Your loans and any credit that you have taken out on your own will not affect your husband unless he is a cosigner. With that in mind, you can rest assured that his credit won’t be affected when you sign for an Income Based Repayment Plan and none of your student loan information will appear on his credit file. The only reason he is required to sign your IBR is because you are a married and filing your taxes together. This type of income-driven repayment plan uses the combined gross household income, that is your income plus your husband’s before taxes, to calculate your new student loan payment.

Generally, you can change your IBR to any other income-driven plan at any time as long as you qualify. And to better address your question of whether you should stay on the standard plan or move forward with your IBR, it really depends on your overall financial situation and your combined income. I suggest that before you make a commitment to sign for an IBR, you talk to an NFCC certified credit counselor to explore additional income-driven repayment options such as Pay as You Earn (PAYE) or the Revised Pay As You Earn (REPAY). Under your IBR, your payment will be roughly 15% of your discretionary income while under REPAY it will be capped at 10%. The math can get tricky, so I recommended you use online calculators or talk to an expert to have a more realistic estimate of what your payments could be under each plan.

As far as your husband applying for a mortgage on his own, he needs to get ready because lenders look beyond credit histories and credit scores. They will ask for your last tax returns and assess your husband’s risk based on all this information. And since he is applying on his own, only his income will be considered during the lending decision. If you were applying together, the income would increase, but then your credit and debts would be factored in as part of the decision, which could negatively impact his loan eligibility. If you feel that you and your husband need additional assistance, there are plenty of resources and programs to help first time home buyers achieve the big dream of homeownership. Explore the resources in your community and the NFCC and get ready for one of the biggest investments in your life. Good luck!

Sincerely, 

Bruce McClary, Vice President of Communications

Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.

 

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How Can a Couple Save for Their First Home Purchase?

February 11, 2020CreditBy toptierfinancial

The purchase of their first home is a milestone for any couple — largely because it often takes so long to get there. So many variables are involved that it’s almost impossible to know where to start. Besides, there’s already planning for many other expenses on top of this, from student loans to new cars.

Luckily, with a few tips and tricks, couples can make this dream a reality. Here are a few ways you and your significant other can start to save for your first home.

Communication Is Key in a Relationship

Too often, couples don’t talk about their finances. In fact, a 2018 survey of over 1,000 couples found 38% of respondents didn’t know about their partner’s debts or assets. This lack of communication can cause immense stress, which then leads to arguments and fights.

Not a pretty picture, right? This why consistent, non-judgmental conversation is crucial when buying a home. You want to be open and honest with your partner so that you’re always on the same page. Talk about how much each of you makes, what you have saved and if you owe any debt.

This is also the perfect time to discuss general expectations related to finances. If your significant other wants to buy a new purse, do they need to let you know beforehand? Every couple is different, but the importance of communication remains the same.

Decide on Your Dream Home Qualities

When you can clearly envision the home you want to buy, it’s much easier to save. Create a list of needs and wants for your future house – is it more important to have a finished basement or a large backyard? What neighborhood is best for you? Answering these questions will help you narrow down your search so that you can save your time or money.

Afterward, look at each of your credit scores and start to shop around for mortgage rates. Once you know roughly what your first home will cost, you can save appropriately and apply for the right amount of assistance. Try not to go in blind – in this scenario, preparation is essential.

Track Your Expenses

Even if you don’t plan to buy a home right away, you should create a monthly budget to make the most of your money. It’s one thing to keep track of your own expenses, but when you throw another person into the mix, it can become a bit more complicated.

Sit down with your partner and begin with sharing your goals. These may be short-term things like a beach vacation or long-term objectives like saving for retirement. Then, see how long each of these will take to achieve and how much money you’ll need to set aside for them to happen.

You may find you both will need to eat out less or pick up side gigs to make it all work. That’s okay – at least you know what actions are necessary. These plans will help you accomplish your intentions in the long run, and in the meantime, your dinner dates can be just as special with home-cooked meals.

Home Buying Can Strengthen Your Relationship

Throughout this entire process, the most important thing you and your partner can do is remain realistic. While optimism is a good thing, it’s also essential to be levelheaded when it comes to serious financial decisions like your first home.

Narrow down your search and track your expenses so that you can save the right amount of money for what you want. Above all else, talk to each other — it’ll make the process that much easier and more memorable.

Holly Welles, Real Estate Writer, The Estate Update

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