We all dream of having our own home. The American dream is the garage, white picket fence, and the security of a place to call home. The millennial generation was told a college degree is equivalent to a high school diploma, so we became the most educated generation EVER, accumulated more educational debt than our parents, and raced to get that amazing career opportunity.
It is no wonder student debt is the #1 impediment to buying a home for those under 45 and 2 out of 3 millennials have student debt.
Below are three financial considerations to take when you decide to get married:
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Understand your individual student loan payoff plans and how they can change after getting married.
There are factors that need to be considered such as, do you work at a nonprofit organization, what is your income, what is your student loan amount, do you want to pay it off as quickly as possible, can you possibly get forgiveness, generally what is your preferred approach.
- Depending on you and your spouse's income, getting married can either positively or negatively affect your tax liability! This means you are on a fully amortized 10 years payoff plan and you are not on an Income-Driven plan where there are many plans to choose that are based on your income. Question: "If I get married and filed my taxes jointly, my spouse's income will count towards my student loan payments?"
The answer is "Yes". It is highly possible. It is best to know what are the implications. Getting married and the way you filed your taxes affects your student loan payments.
Here are the scenarios:
- If you hold all the debt but your spouse doesn't but they have income, you married and filed jointly, your spouse's income will count towards your loan payment.
- Let's say you owe 1/3 of the aggregate family household student loan. As an example, you owe $100K and your spouse owes $200K. So, you owe 1/3 of the student loan debt. For you, filing jointly is advantageous.
Why? Let's say your household loan payment total based on your income is $1,000. 30% of $1,000 is $330.33. This is how much you have to pay. In your aggregate household income, your spouse has to pay the $666.66 because they owe that part of the aggregate household, that is if you are filing jointly.
However, if my spouse owes $200k and they don't have a job. You do not want your spouse, who is a stay-at-home spouse to pay a $666 loan payment. So, there are the "tax loopholes" in which your spouse could file into a loan plan that doesn't include your income and if they earn $0, their loan payment will be $0.
Knowing the plans and the way you file your income taxes will have a huge difference in your student loan payments. Remember that student loan servicers will not help you in getting the best understanding of what you should be doing with your student loans.
- Marriage can help your chances of getting mortgages and credit since it considers both spouse's income towards the loan.
Once you understand what that approach is, the 3rd tip is if you have future goals together, understand how to set those goals together to both works towards achieving them. Buying a home, as an example. Your student loans impact your debt to income calculation. Understand what is best considering your student loans and your situation is like in the example mentioned in tip 2. If that is the case, it is important to understand what mortgage type is best for your specific financial standing especially in light of your student loans.
To really understand how is my student loans recognized in the debt to income against every single mortgage type, for example, FHA treats my student loan and my spouse's student loans combined very differently than Fannie and Freddie.
Your student loan status in standing whether you are in forbearance, in repayment, in grace period, or in school calculates the debt to income to that student loan differently against all mortgage types than if you are actually in repayment.
Understand what mortgage plan is best for you considering your student loan circumstance. If you are both in Income-Driven Repayment plans and you cannot qualify for FHA because you have a high debt amount, you need to consider conventional unless you qualify for VA, USDA, and these other programs.
Lastly, just know that your current student loan standing impacts the debt to income calculation and the overall mortgage plan you can qualify for.
No matter what your circumstance is, there is hope. You need a good plan and someone to work with you through a good plan and build goals together. But understanding the impacts of marriage on your student loan debt is the key to understand how you are going to work together to move from debt to the first stages of wealth building.
Don't do this by yourself. Know you are not alone. Know that we are here to cheerlead you along the way so that you can achieve your financial dreams!
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