Having a baby and buying a home are both challenging, life-changing events. Trying to buy a home while pregnant can be a doubly challenging and stressful experience for both soon-to-be-parents — but it doesn't have to be. Proper planning can ease the stress and help you find the ideal home for your circumstances.
- Assess Your Future Needs – What do you need in a new home with a new baby? Obviously, you will need more bedrooms, but what about considerations like the placement of the bedrooms? Will your bedroom be near your baby's room? Does the home have hazards to children like unprotected stairs and railings, and can you temporarily baby-proof it during the early years? Is there sufficient outdoor space and dining space? How are the neighborhood schools? Will either parent have an excessive commute time to work? Is the area busy or quiet?
Envision your likely future routine in order to assess your home requirements properly. Another consideration: if you are planning to stay in your new home for a long time, will it accommodate any future additions to your family beyond the one already on the way?
- Gauge Affordability – What price range of home can you afford that fits the criteria? Online calculators are available to help you run scenarios given your income, expenses, and debts — but how do you know where to draw the line on affordability in the eyes of a lender? Greg McBride, Chief Financial Analyst at Bankrate.com, offers a few standard guidelines: "In terms of the monthly payment for your mortgage — and this is going to include the taxes and insurance — you don't want that to exceed more than 28% of your gross monthly income." Meanwhile, considering the "back-end ratio", which includes all monthly expenses like your car and credit card payments as well as housing, "…conservatively, you want to keep that under 36% of your gross monthly income."
Lenders may be willing to offer you loans even if you have higher debt-to-income (DTI) ratios, but just because you qualify for more debt doesn't mean that you should assume it. McBride suggests that you should "…try not to pay more than three times your annual income for a house."
- Watch Cash Flow – How will household income and expenses change after the birth? You now have extra short-term expenses, as well as long-term expenses such as education funds, to consider. Working mothers are likely to have at least a short-term dip in cash flow, and it's important to communicate your plans to the lender. Lenders have in the past denied mortgages to pregnant women without assurances that the mother will go back to work soon enough to ensure that payments are made.
Denying a mortgage based on pregnancy is a violation of the Fair Housing Act — but it is fair for the bank to consider your ability to make future payments if the mortgage loan application was based on income that will not be the same after the baby arrives. Similarly, future large running expenses such as daycare can alter the DTI assumed in the mortgage application. By keeping a larger cushion between your expected income and expenses, you can increase the chances of a smooth mortgage process.
If you calculated your affordability but failed to take post-birth changes into account, rerun your calculations. You may have to downsize your housing expectations.
Your life is about to change forever, and there will be many more changes to come — some great, some less so. Make the first transition easier by finding a home that meets your well-thought-out needs without overstretching your budget to do it, and enjoy your trip along the wild but satisfying ride of parenthood.
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