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Trying to get some info for a friend here. She's looking at getting a mortgage - her BF of many years can't join her on a joint so it'll just be her.

Am I correct in assuming that all their monthly bills will be counted just against her income, or is it possible that the mortgage company will allow his income to count in helping pay the bills?

She's going for a FHA mortgage.

If it's the former, would it help her if she got her BF to pay rent with a formal agreement (dunno if he'd even go for that since I barely know the guy)?

(Some of this extra info is also contained in the comments below)

In terms of savings it sounds like he's got about $7K cash, she has virtually nothing. His credit score is too low to be approved for a mortgage so it'll all be on her.

Also - more to add: She's only recently taken her student loans out of forbearance and she's taking the view that, as long as her mortgage + tax + PMI is broadly the same as her rent, she's good to go. Both vehicles are old and will need replacing in the not too distant future and she's only had her current job for about a year.

smci
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Not my usual name
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    Why can't it be joint? Is it just because he has bad credit, or are there any other reasons? – yoozer8 Aug 01 '19 at 12:27
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    Apparently his credit is in the low 600's, her's I think is at least starting with a 7! He also has the savings - albeit something like $7K. She's got nothing aside from ger 401K I think. She says she's been pre-approved - but I'm not 100% sure if that's "pre-approved" or "Qualified". Also, even pre-approval can change when the rubber meets the road. – Not my usual name Aug 01 '19 at 12:28
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    @yoozer8 why in the world would she want it to be joint? Thank the good Lord that his credit is in the toilet. – Pete B. Aug 01 '19 at 13:16
  • When deciding who goes on what paperwork, what is the couple's ultimate goal? It's hard to advise on what solution is "better" without knowing that. Although the answer you've already received from @PeteB. covers things well already. – dwizum Aug 01 '19 at 13:41
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    @PeteB.I'm not advocating a join mortgage, just looking for clarification on her BF of many years can't join her on a joint so it will just be her – yoozer8 Aug 01 '19 at 15:22
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    No money! Don't buy a house! AC unit fails, even if he pays (7K probably not enough) and they are both broke. Then the hot water heater goes out. – AbraCadaver Aug 01 '19 at 20:25
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    @AbraCadaver Oh, that $7K's gonna have to go for the down-payment (FHA apparently demand something like a 3% deposit). Trust me I've said all this until I'm blue in the face, and more besides, but she's gung-ho and determined. "I refuse to live in fear" I think is her response to my 'you've no savings' remark... – Not my usual name Aug 01 '19 at 20:29
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    7k is not enough for closing costs of a reasonably priced house. A 150k house with a FHA minimum down payment of 3.5% is already at $5,250. Now add in a HUD inspection and all the closing Fees and you are talking about another $4,000 or $5,000 dollars. Since this is a FHA loan, you would also need to fix anything the HUD inspectors seems 'unsafe'. So all those numbers will be increased by how ever bad the house is. If she's stubborn have her go to a bank and have them run the numbers against the house and I bet she'll see the light.. Otherwords - Don't let her do it. – Jimenemex Aug 02 '19 at 14:47
  • @Notmyusualname, both of your comments should be part of the Question, as they have pertinent info about the finances of the couple in question. In fact, I'd almost count it as the most pertinent info of the question as that pretty much overshadows most of the rest of the issues they are having. – computercarguy Aug 02 '19 at 16:37
  • FWIW, this was exactly my situation (my now-wife was the buyer) and my income, though twice hers, was not considered because of our marital status. (Then when we tried to buy a second home, we found out that I don't have a credit rating - I've completely fallen out of the credit reporting system due to not having any open line of credit or even utility bills in my name for 19+ years.) – StackOverthrow Aug 02 '19 at 17:42
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    Just to point out the obvious danger: this is predicated on her (financially irresponsible) BF helping pay the mortgage (and staying there, and remaining employed), but he can't manage much more basic bill payments - she should tell you why? Fix that before taking on 1000x bigger financial commitments. This setup sounds like trouble waiting to happen. – smci Aug 03 '19 at 11:20
  • Also I get weirded out when you say "would it help her if she got her BF to pay rent with a formal agreement (dunno if he'd even go for that since I barely know the guy)?" Sounds like you're trying to help her not act against her self-interest, and she's resisting your advice. This sounds like a bad scene. – smci Aug 03 '19 at 11:40

3 Answers3

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Has she talked to a banker? That would be a great place to start.

Please understand that this is a hot mess in the making and as her friend, you should help her navigate through it. It is better that either she, on her own, or he on his own, buy the property. It should be communicated that the party not buying the home will have no financial interest in the home but would expect to contribute to the costs. This is the case anytime a person rents a home, they pay rent but do not experience the benefits or pains of owning the property.

Any bills in her name will count against her income to debt ratio. Bills exclusively in his name will not. These metrics are independent of who actually pays the bills. For example he might pay her car payment in lieu of rent. She would still have to count her car payment as part of her debt.

While long time boyfriend/girlfriend relationships may feel like a marriage, the courts do not agree. When a married couple buys a home joint ownership is granted (in most states) even if only one is on the mortgage. Single couples do not enjoy that same grant, and there can be some very hurt feelings when one learns that they have no interest in a property after a painful breakup or even death.

Pete B.
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    Oh trust me I've tried. It's even at the point she's looking at putting her BF's name on the title, despite only her being on the mortgage. Right now I'm looking at trying to stop her from making what could be the worst financial decision of her young life. – Not my usual name Aug 01 '19 at 12:35
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    Sometimes the bankers help us from making poor decisions, she might not get approved. Also, along these lines, other friends of yours are making similar self-destructive financial decisions, because we all do. Such is life. Thanks for trying to be a good friend. – Pete B. Aug 01 '19 at 13:15
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    Also found: https://money.stackexchange.com/questions/86707/can-an-unmarried-couple-buy-a-home-together-with-only-one-person-on-the-mortgage?rq=1 - that may put a kibosh on her putting his name on the title... – Not my usual name Aug 01 '19 at 13:19
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    Under no circumstances should she put her boyfriend's name on the deed because then he will be entitled to half the equity if he heads for the hills. – Bob Baerker Aug 01 '19 at 13:31
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    He apparently doesn't care either way. She's the one doing it so she can show 'her love' for him (or something like that). Her logic is that they've been together for something like 15 years so what on earth can go wrong... – Not my usual name Aug 01 '19 at 13:49
  • I'm the only one on my mortgage but they said they have to put my wife on the title.... I don't think it actually makes much of a difference it's just that tough legal battles ensue if things go south. Also bills don't necessarily mean debt. debt counts against her, bills do not (I haven't been asked how much I pay for my bills, they just looked at my credit report). – xyious Aug 01 '19 at 20:11
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    @Notmyusualname "... she's looking at putting her BF's name on the title, despite only her being on the mortgage ..." - Honest question: I'm not sure I fully understand the implications here; would that mean the BF would be part owner of the house, despite not being co-responsible for the mortgage? (If so: yikes...) – marcelm Aug 01 '19 at 20:21
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    @marcelm yes, yikes indeed. Very very much "yikes". In fact, Robby the Robot's going crazy with "Danger, Danger Will Robertson" it's that much of a yikes... But hey, she loves him, he loves her so what can go wrong???? – Not my usual name Aug 01 '19 at 20:27
  • What can go wrong is the mortgage lender not letting her give away 50% of a house she only owns 3% of. They could even call the note, and then she’s in the soup.... – Harper - Reinstate Monica Aug 02 '19 at 15:48
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    "While long time boyfriend/girlfriend relationships may feel like a marriage, the courts do not agree. " Some jurisdictions have a concept called "common law marriage" that can make a difference. It's true the couple has to believe they are married before it makes any difference, so there's some problems with the system. It still makes the above statement less than 100% correct, but rather only around 90% correct. It's a small caveat that may or may not have an impact. – computercarguy Aug 02 '19 at 16:42
  • @computercarguy This is Kentucky: no such common law marriage concerns exist, that said, your comment is still pertinent elsewhere – Not my usual name Aug 02 '19 at 17:43
  • @Notmyusualname "so what on earth can go wrong"? People even get divorced after more than 15 years... – RonJohn Aug 02 '19 at 18:49
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    @Brian OP's friend needs to be reminded, not OP. – RonJohn Aug 02 '19 at 20:03
  • @RonJohn in that case, however, there is alimony and the possibility of child support. It sounds like he needs to own up to his rightful role as a provider in any case. – pygosceles Aug 02 '19 at 20:15
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    @RonJohn Sure, but we're talking to OP here. It sounds like OP's friend has their head firmly buried in the sand...even after 15 years – Brian Aug 02 '19 at 20:36
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This is of course a disaster waiting to happen, and it's doubtful you will have the influence to do anything about it unfortunately (if they've been together for 15 years and yet you barely know him). Hopefully they simply won't qualify and the problem solves itself.

To directly answer your question though:

If this was a multifamily home, or an investment property, a formal rent agreement would potentially allow you to use some percentage (up to 85% of the fair market rent I believe) of that rental income as her income. I'm not sure if there are restrictions on the relationship between the renter and the rentee -- which is to say I'm not sure if the rental income can come from a significant other or not.

However, I'm guessing it is neither of those things and she is instead buying a single family home she intends to have as her primary residence. In that case none of his income can be included for calculation of the debt to income ratio.

There are also gifting rules which determine where you can get the money for the down payment from. Depending on the circumstances of her credit score and so on it may be technically against the rules of the FHA loan to use his money for the downpayment as well. But at least in the pre-mortgage crisis days no one looked at where the money was coming from too closely, I'm not sure how stringent everything is today.

EDIT::

She should also realize that given how the economy works today, the flexibility renting provides is an enormous benefit that really should be translated into real dollars. Home ownership got such prominence in the baby boomers generation because buying makes a hell of a lot more sense when you expect to stay at one job for your entire career and aren't expecting to move for decades, if ever. It relates to my next point on amortization.

I also wanted to add something about amortization because loan officers take advantage of the fact that most people have no idea how they work. If she were to buy a $165,000 home on a 30 year FHA mortgage, she will be paying about $840 per month. But here's the thing: most people don't hold on to a 30 year mortgage for 30 years. It's more like 5-10 and probably closer to 5. This matters because it turns the whole "renting is throwing away your money" thing into a huge falsehood. Out of that $840, only about $220 is paying the principal and the rest is interest. You don't start paying more towards loan principal than interest until 15 years into the loan!

So lets say after 7 years you decide to upgrade, or move to a new city, or whatever. You would have paid about $70,000 and nearly $49,000 of it went straight to interest payments!

Talking about it from this approach might be more effective if you are hoping to dissuade -- the numbers people use when comparing buying vs renting are very often hugely massaged in favor of buying and don't take a lot of things into account (see also my comment on repair costs).

JTP - Apologise to Monica
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eps
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  • It should also be stressed to her that directly comparing the raw rent costs to the raw mortgage costs is a hugely unfair comparison in favor of buying. Rent often prices in lots of monthly costs that mortgages do not, and those costs can really add up. In particular: repairs -- part of your rent is an 'insurance policy' for when stuff inevitably breaks. People who have rented their entire lives tend to not really appreciate how incredibly expensive even basic repairs can run, and how stressful it can be to find a reputable contractor who will do a good job for a reasonable price. – eps Aug 02 '19 at 20:29
  • eps - you are so right about everything after your "EDIT:"! I myself have never understood the "renting is throwing away your money". My parents lived in the same house for 40 years - but I sure as hell don't see that happening in the neighborhood around me now! – davidbak Aug 02 '19 at 22:59
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The best security is in marriage. Then it's much easier to file jointly and have both of their incomes counted. Building up or repairing good credit may also be necessary. There are many very good reasons why financial institutions have respect for the stability and security that marriage provide. If the underwriters aren't comfortable with it, neither should your friends be comfortable with a needlessly risky living arrangement. Underwriters (those that don't accept subsidies, anyway) have to be accurate or their company goes under, so that's an important signal to pay attention to.

pygosceles
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  • If you read the rest of the comments you may get an inkling in the sort of decision making skills she seems to possess when it comes to all things financial. The fact I've learned more things about FHA mortgages in 2 days than she has in 2 months should also tell you something. – Not my usual name Aug 02 '19 at 20:11
  • With regards to the "what on earth could go wrong" mindset, it sounds naive. In the first place making the home purchase contingent on unequivocal marriage should at least mostly solve the problem of being financially manipulated. Discernment takes considerable time of prudent living to build. – pygosceles Aug 02 '19 at 20:16
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    Nothing about this makes any sense to me whatsoever. I brought up just one of the items others have mentioned here and she looked at me like I had three heads. Right now I fear she's suffering from 'shiny object syndrome' and is heading gung-ho into a process that will ultimately end in tears. Sadly it may already be too late for me to intervene since nothing I say now will be seen as anything other than me being negative and unsupportive. – Not my usual name Aug 02 '19 at 20:20