It is difficult to answer such a question responsibly online.  Of course, so much depends on your personal family situation, and I have only the basic information.  So I would recommend that you be in touch with a community rabbi, one that you feel comfortable with, and could see going through a conversion with, if it comes to that.

 

Having said that, I am going to answer as straightforwardly as possible, so that you have a clear sense of the facts. It is true that jews are strongly discouraged, both legally and socially, from marrying and having children with people outside the faith.  I cannot speak to question of spiritual punishment, as this falls in the realm of mystery, nor to the issue of social stigma, as this depends on the culture of the community. I can say, however, that there is no lasting practical consequence in Jewish law for the situation you describe. It would not make your children any less Jewish, nor would it make it more difficult for you to convert.

 

I hope this is helpful, and I wish you and your partner sucess in navigating this journey.

For various historical, sociological, and spiritual reasons, Jewish law has, for more than two millenia, determined that Jewishness is determined by the birth mother. That means if a Jewish woman and a non-Jewish man have a child together, the child would be considered Jewish by the standards of Jewish law. Consequently, it also means that, if the situation were reversed, and a Jewish man has a child with a non-Jewish woman, the child would not be Jewish. Therefore, in your situation, any children you have with your Jewish partner would be Jews by birth, even if you had not yet converted.

 

All demographic indicators point to the reality that, from the perspective of Jewish continuity and Jewish commitment, Jewish children fare better when both parents are Jewish. However, there are plenty of good examples of Jewish children who grow up with one Jewish parent and go on to live dedicated, engaged, meaningful Jewish lives in adulthood, passing on their deep Jewish connections to their children as well. By the way, the opposite is true, too: there are plenty of Jewish children who grow up with two Jewish parents and don't have strong Jewish ties in adulthood. The result in all cases is largely dependant on the approach of the parents. When parents, even in households with one Jewish parent where the non-Jewish parent is supportive, show their children that being Jewish and living Jewishly matters to them, when they demonstrate Jewish ways of living and practicing at home, when they prioritize Jewish education, when they embody Jewish values, the children are more likely to stay Jewishly engaged. When parents don't, even in a household with two Jewish parents, they are unlikely to be successful raising committed Jewish kids.

 

In a case like this questioner's, where he and his partner are striving to be the kinds of parents where Judaism is fully present in their home and in their family life, and since their children would be Jewish whether or not he converts first, I see no Jewish problem with him trying to start his family before he converts. Indeed, the first command in the Torah is "be fruitful and multiply." We are only granted a limited window in our lives to fulfill this mitzvah. Becoming Jewish in a manner that reflects seriousness and commitment takes time, and is not biologically-restricting in the same way.

 

On the other hand, it is important to bear in mind that converting to Judaism can be a major time commitment. So is raising children while juggling all of life's other necessities. If one has kids before he converts, he may find that he simply doesn't have the time to pursue conversion (cf. Mishnah Avot 2:4, "Say not, 'When I have free time I will study. Perhaps you will never have free time!"). Therefore, if it is possible to convert to Judaism before one has children (in a timeframe that would not inhibit one's ability to have children), I would strongly advise that approach.

Mazal tov on finding 'the one'! It's wonderful that you've found one another and are talking about creating a family with each other. These are important and serious decisions and it's clear that you're doing a lot of thinking and talking about it. I would strongly recommend that you find a local rabbi to meet with as a couple (even if she or he doesn't officiate at your wedding) and enroll together in a local Introduction To Judaism class. The Reform Movement offers a 16-20 week course in many areas, and you can find a listing here. 

 

Pretty much all streams of Judaism would recognize your children as Jewish. More traditional forms of Judaism are concerned with who the mother is, and more liberal streams of Judaism are more interested in upbringing, so in either case, you're okay there. Of course, if you're considering conversion, that's something you should explore as fully as possible for your own spirituality. If you choose to convert later, there's no 'penalty' per se, but you and your family may have to negotiate some awkward social situations in more traditional congregations, and while there's more acceptance of intermarried couples than ever, there are still some who simply don't know how to respond appropriately to folks who are creating a Jewish home with one non-Jewish spouse. 

The most important thing, regardless of whether you convert or not, is to learn as much as you can! Ask your future in-laws questions. Go to services. Practice and explore Judaism as fully as possible. Take classes and meet with a local rabbi. See what resources there are on the web (I happen to like ReformJudaism.org,  My Jewish Learning and InterfaithFamily.com). And keep having conversations with your future spouse, your family, and her family. What are your 'red lines'? What family traditions are keepers for you? The more information you have, the more conversations you have, the more you two will be able to start your married life--and family--from a place of strength and holiness.