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Newlyweds should save, plan before buying home
MISSISSIPPI STATE -- Newlywed couples face numerous questions when considering the purchase of their first home.
Finances, mobility, career stability, credit and the state of the housing market are all important factors to think about before making that investment.
Rita Green, Mississippi State University Extension Service assistant professor and family financial management specialist, said couples that opt to buy homes should do so based on what they can afford and not how much they are qualified to borrow.
“Lenders don’t use the amount of cash you have on hand to determine whether or not they will grant a loan,” Green said. “Let’s say a lender approves a couple to purchase a home for $150,000 with a mortgage that requires a $1,100 monthly payment, and they are currently paying $850 in rent. The couple should consider whether they can comfortably assume the additional debt. If you are not financially stable, prepare for home ownership by checking your credit score and working on resolving any negative accounts.”
Susan Cosgrove, an Extension agent in Newton County specializing in financial management, said couples generally prefer buying, but this is not always the most responsible path to take. The simplest and most practical way to arrive at the best option after tying the knot is to learn about the home-buying process and plan ahead.
“Couples should have a written spending plan,” Cosgrove said. “They need to know how much their expenses will be before purchasing a home. They should do some research to estimate the costs of utilities, insurance and taxes. The general rule of thumb is to spend two and a half times the annual income on a home. This would be especially true for couples who expect to increase their income.”
Green said external circumstances, such as the Great Recession of 2007-09, have made and continue to make some couples more careful before committing to a long-term house payment.
“Some effects attributed to the Great Recession have become a part of the new economic normal,” Green said. “Part of that new normal may be that new couples are waiting to achieve a level of career stability and pay down student loan obligations before they purchase a home.”
Housing market status varies widely from state to state, Green said, but the market is favorable for newlyweds in Mississippi.
“During the height of the recession in 2009, there were tax incentives of up to $8,000 for first-time homeowners,” she said. “It was a great time to buy a house if you were in a position to do so. The same is true right now. Interest rates for mortgage loans are low, and since some homes have lost equity, it may be a great time to get a good deal on a nice property.”
Green said couples who are financially ready to purchase a home should do so, provided they are prepared for the responsibilities of home ownership. One of those responsibilities is expecting the unexpected. Repairs and maintenance needs are recurring events, which is why first-time homeowners should save as much money as possible both before and after they move in.
“Very few financial institutions loan 100 percent of the cost of a house,” Green said. “If you qualify for a 95-percent loan, the lender will expect you to pay 5 percent. You will also need money for the cost of moving and deposits for cable, Internet and utility services.
“Home ownership is not for everyone,” she added. “If you like the ability to move every two years to live in different neighborhoods, then renting affords you a greater measure of mobility.”
The MSU Extension Service offers homebuyer education courses to help those who want to buy a home prepare for that process. Learn more about these opportunities.