When you find that special someone, you dream of the future ahead. From having kids to retiring together, there are many life changes you will go through as a couple. One of the biggest moves you’ll make together is purchasing a home.
Whether you’re married or in a committed relationship, owning a home is a dream for many couples. Some partners will wait until after they tie the knot; others prefer to buy a house before saying “I do.” But is there a benefit to waiting until after you say your vows? Read ahead to find out what you need to consider when buying a home with your significant other.
Come to an agreement
Communication is key. Before getting started, it is important to make sure both partners are on the same page. Married or not, you should work together to make a list of what is important to each of you. This could include the type of house, the neighborhood, the agent you use, distance from your jobs, and how much you are willing to spend.
This is a major step in the process. Most homebuyers will need to take out a mortgage to afford their new home. Overall, there is no advantage when applying for a mortgage as a married couple—you won’t receive a better rate by getting hitched. But there are several things married and unmarried couples must consider when applying for a mortgage.
Generally, married couples are a single unit when applying for a mortgage. This means that both credit scores are part of the application process. If you both have good credit, this shouldn’t be a concern. But if one of you has weaker credit, it can affect how much you can borrow or even lead to lenders denying you a loan.
While unmarried couples can apply together for a mortgage, they can also decide to have only one of the partners apply for the loan. This is particularly helpful if one of you has bad credit. It allows the partner with stronger credit to only submit their information. However, this can have a few drawbacks. If you apply together, lenders will use your combined incomes when figuring out your debt-to-income ratio. But if only one of you applies for a mortgage, the lender will only use that individual’s income. This can lead to receiving a lower loan amount than what you both would qualify for.
If you have a mixed credit history, there is nothing wrong with waiting. By putting your house hunt on pause a little longer, you have time to work on improving your credit score.
Type of mortgage
This is another major decision you need to make. Some mortgages are more conservative, while others are a little riskier. The decision will come down to how you feel as a couple. Types of mortgages include:
- Fixed-rate mortgages: This is a popular type of loan. The interest rate remains the same through the entire term. These typically have 15- or 30-year terms.
- Adjustable-rate mortgages: These mortgages have an interest rate that increases and decreases periodically. They will typically start with a lower, fixed payment rate before adjusting to current market rates.
- FHA loans: These loans are offered by the Federal Housing Administration. They allow homebuyers to make a smaller down payment of as low as 3.5 percent. This can be a good option for those with weaker credit ratings or lack the funds for a large down payment.
Marriage affects how you obtain the title of the property. The title determines who legally owns a home and who the property transfers to in the event of death. The title isn’t affected by the mortgage—if you obtain a mortgage in one of your names, you can still divide ownership.
Many married couples will hold the title through tenants by entirety. This option is reserved for married couples, and it allows them to own a home as a single legal entity. If one spouse dies, the surviving spouse will receive the full title. Certain states allow couples to obtain the title as a community property. Each spouse owns half of the property, but inheritance may determine their interest in the property in the occurrence of death.
Title options for unmarried couples include:
- Joint tenancy: Each partner owns an equal share of the home. One partner will have full rights of the home if the other passes away. This is similar to the standard agreement of married couples when they buy a home.
- Sole ownership: One person claims the property in full. This can be an option when one partner holds the mortgage to the home. In the event of death, a will determines inheritance.
- Tenancy in common: This allows homebuyers to split up the title in multiple ways. It can be an even or uneven split. For example, one partner owns 80 percent interest while the other owns 20 percent. This split only refers the financial ownership of the property. If one partner dies, their share transfers to who they named in their will. If they have no will, their ownership passes to their heirs according to state law.
Always check your state’s title laws before buying a home with your partner.
No matter how good things are now, anything can change. That is why having an agreement in place can be a good idea. Disputes over financial decisions can put a large amount of stress on both of you.
It can be beneficial to decide who contributes what to the finances, whether or not you’re married. Down payments, closing costs, and a monthly mortgage payment can add up fast. Most couples go with the option to split it down the middle. But what if one member of the relationship makes significantly more? You may need to decide whether one partner pays a larger portion of the bills based on salaries. It can be important to get this in writing, especially if you’re not married.
Figure out if you will sell the home if the relationship ends or if one of you will remain living in the home. If you decide to go with the latter option, the person who stays can buy the other out.
Home ownership is a major step for both married and unmarried couples. By going in prepared, you will be ready to build your relationship and home for years to come.