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How Three Young Married Couples Manage Their Money

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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The age men and women decide to tie the knot has been on the rise for years. In 2018, the median age for first marriages is 30 for men and 28 for women. That gives individuals almost three decades to establish deep-seated opinions related to finances, including how to save and spend their hard-earned cash and how they want their career to play into their future lifestyle.

While one partner may prefer to sock away savings and establish a sound nest egg, the other may see the value in spending money on once-in-a-lifetime experiences. In other words, couples may not always see eye-to-eye when it comes to the big financial picture. To offer some real-life perspective on these real-life struggles, we spoke with three young couples to learn how they handle their finances, divvy up expenses and save for the future.

Splitting expenses — except on old debts

Courtney and Ryan Ples have been married for seven years and live in Baltimore, Maryland. Courtney is 31 and works in sales at an educational technology company; Ryan is 32 and works as a consultant for Verizon.

As the assistant director of the Maryland Fund for Excellence at the University of Maryland, Ryan was used to hearing “no” when he called to ask for donations. And the reason was almost always the same — the person on the phone needed to consult with their spouse because they didn’t personally handle the finances or they needed both parties to agree before committing.

“It was frustrating that members of a marriage didn’t have the ability to definitively say ‘yes’ or ‘no’ without discussing with their spouse,” said Ryan. When he married his then-girlfriend, Courtney, in April 2011, the couple decided not to let themselves be beholden to similar guidelines. “If Courtney wants to donate to a political campaign or fundraiser, I trust she won’t make an irresponsible decision that would challenge our household financially.”

From the very beginning, the couple knew that establishing some kind of financial independence was crucial for their marriage. Since they have similar incomes, the Ples’ each contribute 50% of their take-home pay to a joint checking account that takes care of their monthly expenses, including their mortgage payment, house-related expenses, groceries, and anything that involves their three-year-old daughter (including a 529 plan for her education).

However, the other 50% of their paycheck goes into their personal checking account. From that account, Courtney and Ryan each pay the personal expenses they accrued before getting married, including student loans, car payments, individual credit cards and cell phone bills. Unlike many couples their age, Courtney and Ryan did not live together while they dated, and, as a result, did not have many shared bills before marriage.

While their approach works for them now, Courtney wishes she had had a deeper discussion about finances with Ryan before getting married. The couple started married life on one income — Courtney had just quit her job to move across the country — so Ryan organically took the lead in financial planning. As a result, he initially handled the bills and budgeting. The couple adopted the 50/50 system once Courtney started earning money, but Ryan still handles the majority of the financial decisions.

Courtney admits that, at times, she gets frustrated if she doesn’t understand something specific about their shared finances, but acknowledges that she needs to ask more questions.

“I don’t want him to feel like he has to carry all the weight for our family,” she said.

Saving for the future: Courtney and Ryan have a joint savings account, a joint IRA account, and individual 401k plans through their work.

In order to save money, the couple uses apps like Qapital, which acts like a digital piggy bank by rounding up transactions to the nearest dollar (or however much you allow it to) and storing it in an FDIC insured savings account at one of the company’s partner banks. Users can attach a goal to the account, which makes it simple to save up for a vacation or a down payment for a car.

“A couple of dollars each week adds up quickly,” said Ryan, who once saved $2,500 with Courtney in four months through the app.

The couple also expects each other to save on their own. Both Courtney and Ryan have individual savings accounts they fund with leftover cash from their personal checking accounts.

Establishing common ground: When it comes to additional income, like performance bonuses, the two discuss exactly how the funds are being used.

“I never would be like, ‘This is my bonus, I’m going to get golf clubs or go on a boys trip,’” said Ryan.

To make sure they are on the same page, the couple came up with three top goals for extra income: lowering debt, enjoying life experiences and increasing their savings.

“We’ve lived in debt our whole lives and we want the only debt left to be our mortgage,” Courtney said. “That’s where the majority of extra income goes. However, we also prioritize us a lot, even if that means lessening debt payments, because life is short and we want to experience as much as we can while we physically can.”

Soon, the couple will have additional income: Courtney will start earning a commission on top of her salary. Their plan is to have 85% of the commission check go into their savings account to help finance a future move, and the remaining 15% will go into their joint checking account.

Separate accounts, but an even split on expenses

Nichole and Cole Huber have been married since September 2018 and live in Tucker, Georgia. Nicole is 32 and works as an IT recruiter; Cole is 30 and works as a welder.

Even though Nichole and Cole Huber have separate bank accounts and credit cards, the couple makes a point to split joint expenses evenly. Through cash-transfer apps like Venmo, the two can make sure their contributions are 50/50, and they take turn paying whenever they dine out.

While the couple has discussed having a joint account when they have children or are saving up for a big expense, like home renovations, past experience has taught them to be cautious. Nichole was previously married and said her past marriage ended with a lot of “money attachments.”

“My ex-husband and I pulled our money together and lived a lifestyle that required both our incomes,” Nichole said. “He made substantially more than me so when it came to separating, I had to trust he would follow through on paying for things until we fully separated all our financial obligations.”

“I felt stuck because I didn’t have an account of money on my own and money was used to have power over me,” she said. “[My ex] would reiterate that he was still paying for me — rent on a house we had, the mortgage we had together, cars we bought based on our dual income lifestyle — so part of my mentality now is to live a lifestyle I can afford on my own and to have my own money saved up for the future.”

Although Nichole earns about 30% to 40% more in annual income than Cole, the couple decided together that they would split expenses 50/50 because their joint expenses don’t total up to much.

“It all comes down to being fair,” explained Cole, who said that when expenses are split evenly, “there’s nothing to argue about and there’s nothing to discuss.”

“If she wants to go buy something, that’s great,” he continued. “Same for me. The thought of asking for permission … it creates animosity around finances.”

Saving for the future: Right now, the couple maintains individual savings accounts. However, they each know how much their spouse contributes to their 401k plans and have agreed to start individual IRA plans in 2019.

“We just have an open conversation about what we’re doing,” said Nichole. “I don’t know exactly how much is in Cole’s banking account and he doesn’t know exactly how much is in mine, but we know each other’s credit scores.”

Establishing common ground: Before Nichole and Cole were engaged, the couple sat down to identify common financial goals. One was to purchase a house, and since Cole had enough savings at the time, he agreed to cover the down payment for the home.

“Most importantly, setting joint goals gives us confidence that we are both looking to follow the same path financially,” Cole said. “Gaining an understanding of how you both view and value money allows you to then segway into a conversation about financial goals.”

Cole explains that “discussing” and “compromising” is what led the two to understand their financial goals as a couple and in turn, the big financial decisions become “much easier because we are both shooting for the same thing and we understand what is important to one another.”

Splitting costs in proportion to their income

Tara and Jon Sims have been married nearly three years and live in Matthews, North Carolina. Tara is 34 and works as a probations/parole officer; Jon is 32 and is in a director role in the admissions office at a local university.

Although Tara and Jon Sims have been together for a decade and married nearly three years, the two have yet to open a joint bank account. While they aren’t opposed to it, their banks of choice aren’t the same — Tara banks with Wells Fargo and John is a loyal PNC Bank customer — and they haven’t felt a need to make any transitions.

The couple handles their money in much the same way they did at the start of their relationship. The Sims moved in together after eight months of dating — mostly because Jon moved from Virginia to North Carolina for work and Tara decided to leave her job to start a new life with him.

In those early days, the couple was living paycheck to paycheck. Although Tara had some savings, Jon wanted her to go back to school and finish her degree. The couple was a one-income household and money was tight. But once Tara got a job, they decided to split the bills in proportion to their income.

Tara is responsible for budgeting and managing the couple’s money. Every month, she adds up their expenses — a mortgage payment for the home they purchased together in 2016, utilities, joint credit cards — and comes up with an amount for Jon to contribute, which is usually about 75% to 80% of his paycheck. Jon’s contribution covers the majority of the couple’s joint expenses. He will deposit this amount into Tara’s personal checking account every month since the two never opened an account together.

After paying their bills, Tara budgets for groceries and moves the rest of the money into a savings account that, while technically in her name, is understood to belong to both of them. Jon has access to the account.

Jon earns about 25% more income annually than Tara does, so he feels that it’s fair that he contributes more. The money that he keeps in his personal account is his spending money, and he said whatever is left in her account after paying the bills is her spending money, as long as they’re able to put away $200 to $300 every month into their savings.

Each person’s spending money or “allowance” is used to pay for their personal expenses, which includes their cell phones, car payments, and the personal loans they both took out to pay off the debt they racked up when they first started dating.

Saving for the future: The money that’s in Tara’s savings account belongs to the couple. “I don’t really ask questions,” said Jon. “I just let her transfer it over. Even though it’s in her name, it’s our savings.”

The couple has 401k plans through their work. Jon said he would like to start investing once the couple has a little more money saved up, but won’t make any major moves unless Tara agrees to it.

Establishing common ground: The percentage that Jon contributes each month feels fair to the both of them. “It never felt like a 50/50 or 80/20 thing, but more of ‘We’re trying to get the bills taken care of,’” Jon said.

Key takeaways

Here’s the truth about personal finance: it’s personal. In order to have a successful financial partnership, couples have to communicate to make sure they see eye-to-eye. No matter what your financial situation is, identifying what is important to both people and establishing common ground is critical for a lasting happy and healthy union. The couples above have very different ideas on how to handle their finances, but there some areas that they have in common:

They believe the division is equitable. No matter what your financial situation is, each person needs to believe that the system is fair. In order for this to happen, communication is key, which sounds easy enough but can be quite tough when you’re balancing modern life’s busy schedules.

They have a system for bill paying. Whether each person contributes to an agreed upon percentage and/or dollar amount that goes into an account that pays the bills, like the Ples’ and Sims’, or each pay their share from individual accounts, like the Hubers, it’s important to have a system to make sure bills are taken care of. Additionally, designating one person to handle all joint payments may make life less complicated, but make sure the person taking on the extra responsibility doesn’t feel burdened.

They have financial independence. Each couple said it’s important to have access to spending money that they feel is their own. The amount of this “allowance” should be determined by both parties ahead of time and can be a percentage proportional to income. This can also release tension in a marriage, especially if the people in the marriage have very different ideas on how to spend and save money.

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What Credit Score Is Needed to Buy a Car?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

Credit score to buy a car
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If you want to buy a car, you can probably find someone willing to sell you one and give you a loan, regardless of your credit score. But you might be shocked when you see what it will cost you. Car buyers who need a loan and don’t have a good credit score often end up paying more — a lot more.

Even if you have an average or better credit score, exactly how good it is can dramatically affect how much you pay to finance your car.

Fortunately, by learning about credit scores and how they affect your car loan, you can take steps to make sure you always get your best deal. Read on to learn how.

Buying a car? What’s your credit score?

The better your score, the better the auto loan deal you can get. That’s because if you have a proven track record of borrowing money and paying it as promised, lenders aren’t taking a big chance giving you a loan. They might even compete for your business by offering you low interest rate loans.

If your payment history is sketchier, you’re a riskier bet in the eyes of prospective lenders. You may quit paying, and they’ll have to take steps to collect. Lenders expect compensation for extra risk in the form of higher interest rates.

This chart shows how much your credit score can affect the amount you pay to finance your car.

Average Car Loan Rates by Credit Score, Third Quarter, 2018

Credit Score RangeNew Car LoanUsed Car Loan
781 to 8503.68%4.34%
661 to 7804.56%5.97%
601 to 6607.52%10.34%
501 to 60011.89%16.14%
300 to 50014.41%18.98%
Source: Experian

Do auto lenders use the same credit score as other lenders?

Credit bureaus offer a wide variety of credit scores to help meet lenders’ needs. Because auto lenders place more importance on certain credit information, such as your history of making car payments, the credit score an auto lender sees may be slightly different from the score pulled by other lenders.

What else do auto lenders look at besides my credit score?

Auto lenders look at several factors in addition to your credit history and credit score. According to the Consumer Financial Protection Bureau (CFPB), they’ll also consider how much income you have, your existing debt load, the amount of the loan you are applying for, the loan term (how long it will take you to pay it back), your down payment as a percentage of the vehicle value, and the type and age of the vehicle you are purchasing.

The most important things car lenders consider when you apply for a loan, however, are your credit score and credit history. “You can even get a car loan when you are unemployed, provided you have a down payment and money in the bank,” said Nishank Khanna, chief marketing officer at Clarify Capital, a business lending firm in New York City.

How can I increase my odds of getting a low-interest car loan?

If you want to get the best deal on a loan, follow these steps before you go to the dealership:

  1. Check your credit report before you look for a car. According to Experian, you should check your credit report at least three to six months before you make a major purchase. This gives you time to correct any mistakes on your report, if needed.
  2. Try to improve your score, if needed. One quick way to pump up your credit score is to lower your utilization rate, preferably by paying down your consumer debt. Even if you’ve never missed a payment, your credit score suffers if you’re using too much of your available credit when lenders report to the credit bureaus. Alternatively, you can ask for a credit limit increase, and instantly improve your utilization rate. (Just don’t use that available credit, or you’ll be worse off than before.)
  3. Avoid making major purchases or applying for other new credit right before you want a car loan. Applying for credit creates “hard inquiries” on your credit report, which can temporarily ding your score. In addition, new debt can change your debt-to-available-credit ratio, or increase your debt load.
  4. Know what you can afford. “Always get a car that you can realistically afford in terms of the car payments, not necessarily what you would like to have,” Khanna said. Stick to your decision, no matter how persuasive the salesperson can be.
  5. Find a cosigner, if necessary. If you have just entered the workforce, for example, you may not have a significant credit history. “You may need to have someone cosign your loan to get a decent interest rate,” Khanna said. A cosigner can be a parent, sibling or even a friend. The cosigner will be liable for the debt if you don’t pay, so make sure you can comfortably make the payments, and that you won’t put the cosigner’s finances at risk if something goes wrong.
  6. Shop around. Sure, it’s easy to apply for a car loan at the dealership. But you probably don’t buy cars without shopping around. Why would you sign up for a car loan at the first place you go? You can even find a good deal and get preapproved for a car loan. As a car buyer, it is wise to make sure that you are getting the best deal that you can qualify for. Consider starting your search with LendingTree, our parent company.  On LendingTree, you can fill out an online form and receive up to five potential auto loan offers from lenders at once, instead of filling out five different lender applications.

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Avoid dealerships that advertise “no credit check” or “buy here, pay here.” These dealerships specialize in sales to buyers with poor or no credit and make their own in-house loans. According to the CFPB, you may not only pay high interest rates to places that specialize in buyers with poor credit, but you may pay thousands of dollars more for your car than you would elsewhere. If these are the only dealerships where you can get a loan, consider walking away.

“If your credit score is less than 500, you may be better off getting a car you can afford to buy outright with cash,” Khanna said. You can always get a nicer car when your credit improves.

While you’re comparing car loans, remember to pay attention to the total cost of financing your car. Your interest rate is just one factor in determining your total interest expense. You can also reduce your interest cost by making a larger down payment, paying off your car sooner, and by purchasing a less expensive car.

You have plenty to think about when you’re shopping for a car. You shouldn’t have to worry about your loan at the same time you’re checking out features and searching car lots. Get a head start on financing, before you go shopping, and you’ll have one less thing to worry about while you test drive your next car.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Life Events, Mortgage

Debt-To-Income and Your Mortgage: Will You Qualify?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. Based on your creditworthiness you may be matched with up to five different lenders.

The most important factor in getting a mortgage probably isn’t your credit score. Your application more likely hinges on your debt-to-income ratios — crucial measures that tell lenders how well you are managing payments with your monthly earnings.

Before you take ownership of your dream home, you’ll need to prove you’re aren’t presently overwhelmed with your credit card and loan payments, and that you can comfortably repay a mortgage on top of everything else on your plate.

Keep reading to get a handle on debt-to-income ratios and why they matter so much when you’re buying a home.

Understanding debt-to-income ratios

Mortgage lenders definitely care about your credit score, but they’re even more concerned with your debt-to-income (DTI) ratio. Your DTI ratio is the percentage of your gross monthly income that is dedicated to monthly debt payments, including auto loans, credit cards, housing, personal loans, student loans and any other loans or lines of credit you’re responsible for repaying.

DTI ratios help tell lenders how much money you’ll have left over each month after you satisfy your debt obligations. It also gives them a measurement of how likely you’ll fall behind on your payments and helps them determine how much money they’ll be comfortable lending to you.

How to calculate your DTI

There are two types of DTI ratios: front-end and back-end. The front-end ratio focuses solely on your housing debt, whether it’s rent or mortgage payments. Let’s say you’re trying to get approved for a home loan that has a $1,000 monthly mortgage payment and you earn a gross monthly income of $5,000. You would divide the mortgage payment by your income amount to get a front-end DTI ratio of 20%.

The back-end ratio is more widely used. It includes all of your monthly debt obligations, including your housing payment. To continue the above example, let’s add another $1,000 to account for your auto loan, student loans and credit cards, bringing your total monthly debt payments to $2,000. That makes your back-end DTI ratio to 40%.

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What DTI do you need to get a mortgage?

Generally speaking, to increase your chances of mortgage approval, try to keep your front-end debt-to-income ratio at or below 30% and your back-end DTI ratio at or below 43%. However, it’s possible to qualify with a slightly higher back-end DTI.

The average front- and back-end ratios for all loans closed during December 2018 was 26% and 39%, respectively, according to mortgage software firm Ellie Mae’s latest Origination Insight Report.

Mortgage Type Debt-to-Income Ratio
Conventional loan43%; up to 50% with compensating factors.
FHA loan43%; up to 50% with compensating factors.
VA loanNo DTI max, but there’s a residual income test.
USDA loan41%; up to 44% with compensating factors.

Conventional lenders usually want to see a back-end DTI ratio of 43% or less, though some lenders may approve DTI ratios of up to 50% if the borrower has a higher credit score or a larger down payment. Similar guidelines apply to FHA loans. Check out our explainer on minimum mortgage requirements for a deeper dive on the DTI requirements for additional mortgage types.

How to improve your DTI

There are a few ways to improve your debt-to-income ratio before you apply for a mortgage.

Pay down your existing debt

Take the time to chip away at your auto loan, credit card, student loan and other debt by dedicating any extra money that comes your way to that debt. Use bonuses, gifts, inheritances and tax refunds to pay down your debt balances and eventually lower the amount of your income going to debt payments every month.

Increase your income

If money is a little tight for you right now and you don’t have additional dollars to put toward paying down your debt load, consider increasing your income by picking up a side hustle, such as driving for Lyft or accepting freelance projects. Review these 10 ways to make extra money and pay off debt for more guidance.

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Mortgage options for borrowers with a high DTI

It’s possible to still qualify for a mortgage if your debt-to-income ratio slightly exceeds the general requirements mentioned above. Below, we highlight a few mortgage products available to high-DTI-ratio borrowers.

Fannie Mae HomeReady® Mortgage

This low down payment loan product from government-sponsored enterprise Fannie Mae allows a maximum back-end DTI ratio of 45% for manually underwritten loans. Depending on your credit score and down payment amount, you may also need to show you have a few months of cash reserves saved up.

Freddie Mac Home Possible® Mortgage

Similar to Fannie Mae’s HomeReady® product, GSE Freddie Mac offers the Home Possible® mortgage that allows a maximum 45% DTI ratio for loans that are manually underwritten.

FHA Mortgage

Home loans backed by the Federal Housing Administration allow borrowers to have DTI ratios up to 50% if they supply a down payment of at least 10%.

Other important mortgage eligibility requirements

While debt-to-income ratios can make or break a prospective borrower’s chances at buying a home, there are several other mortgage requirements that matter to the loan application process. Here’s a quick rundown of some of the most important must-haves:

 

  • Credit score: Prepare to have a credit score of at least 620 for a conventional loan and 580 for an FHA loan. It’s possible to qualify for an FHA mortgage with a score as low as 500, but you’ll have to make a larger down payment.
  • Down payment: Save for at least a 3% down payment, or higher if your credit score means you’ll need to put more money down. However, keep in mind that you’ll need to account for mortgage insurance for down payments that are less than 20%.
  • Employment and income: You’ll need to have proof of a steady job and income in order to qualify for a mortgage. Gather your pay stubs and tax returns to demonstrate your capacity to take on a mortgage.

 

The bottom line

Mortgage lenders are tasked with establishing your ability to repay a mortgage, and that includes reviewing your existing debt load and how your hypothetical mortgage would fit into your current financial picture.

If you’re anxious about your debt-to-income ratio percentages, take action to increase the money you bring in monthly and decrease your credit card and loan balances to more manageable amounts.

This article contains links to LendingTree, our parent company.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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