Many people opt to buy a house before marriage these days, but you must take into account how to protect yourself financially and legally if things go sour.
Dreaming of a new home with your loved one is sweet, but going through the process can be exhausting. Expect some headaches when talking about finances, and some uncomfortable emotions when drafting agreements. For example, you must be clear on what happens to the property when you break up.
This helps you have a smooth home buying process together and avoid big troubles later on.
This might be one of the most challenging conversations to have as a couple. Money is always a hot topic after all, especially for those who want to take a big leap forward.
You should know the financial situation of the other and how you will contribute toward all the expenses, like a mortgage, down payment, home improvement, and other costs.
Here are the most essential money factors to consider when you want to buy a house before marriage:
You and your loved one must be clear about the amount you both earn monthly and annually. Why? Because this plays a big role when obtaining a mortgage.
First, the lender will consider your income when weighing the best mortgage loan amount for you. This is to determine what you can pay comfortably through the coming years without being house broke.
Some couples combine their income when co-signing a loan, but if they break up and one abandons the mortgage, the remaining party would be responsible to shoulder the loan alone. This is a basic principle in debt obligation.
While an ugly thought, but it is wise and likely one to consider. For those still wishing to live together before marriage, choosing a mortgage that fits a one-person income is best. This would put you in a less overwhelming situation when the break-up scenario happens, as you won’t be paying a huge mortgage amount alone.
2. Credit Scores
Credit scores are valuable for lenders when approving loans. This helps them decide whether to approve or reject a mortgage application. It also helps them weigh the best mortgage loan amount and interest rate to offer.
Because credit scores reflect how you handle and pay debts, the higher the score, the better you appear as an applicant.
If you have a high credit score, lenders are comfortable giving you a large loan with a low interest rate. Why? Because they are confident that you can pay them back.
But what if you’re a couple who wants to buy a house? If you’re not married, you have the choice to not mesh your credit scores together. This means that the loan lender will assign the loan to whoever has the highest score instead.
On a side note, avoid big debts for at least six months before you apply.
Buying a property means a lot of financial obligations throughout the years. You need to talk to your partner about such obligations and clarify who pays what.
Here are common costs when buying and eventually owning a home:
- Mortgage – Decide who will pay the mortgage each month. Of course, you can equally share the loan. But you can also divide it depending on each other’s income.
- Down Payment – One of you can pay the full down payment alone, but you can divide it as well.
- Fees – You need to pay a lot of fees when you buy a house. Think of payments for the appraisal, home inspection, closing, and property taxes, among others. You can talk with your realtor about these.
- Home Improvements – You must decide about what home improvements to do as well. Think of how to divide the costs, or if only one of you would shoulder it. You may even need to decide if such an upgrade is needed. Both of you must agree to such upgrades to avoid any bad feelings too.
- Utilities and Maintenance – Of course, you must pay for these while living in your new house. Think of water and energy bills as well as repairs. You must make a mutual budget about these on-going costs, and decide who will pay what.
Also, make sure both of you could afford all essential bills alone in case of a break-up.
Consider these factors in addition to expenses, as the property costs, type and location is also important when you decide to buy a house before marriage.
1. Location, Location, Location
Any real estate expert would agree about the importance of location when deciding on a property to buy. Of course, both you and your partner must settle on an ideal location when searching for a house.
First, you must decide if you want an urban or a rural area when you buy a house. This is important for weighing your lifestyle and source of income. Consider personal preferences too.
Then think of an ideal neighborhood. Choose one that is convenient for both of you. If one needs to go to work each day, for example, then find a home that is near the workplace. If you plan to have kids, then find a home with a quality school nearby.
Other considerations may include proximity to vital establishments too, such as hospitals, supermarkets, and restaurants.
2. Type of Property
There are many home property types on the market today. You must choose one where both of you want to live. Think of condominiums, apartments, and single-family houses, among other options.
You should consider the pros and cons of such types too. For example, you want a condominium unit. This means you’ll get a living space with great security and amenities, but also homeowner fees, security fees, and maintenance fees, among others.
3. Property Value
Of course, you must decide the price you’re both willing to pay for a home. Yes, the approved mortgage amount is a good deciding factor, but you don’t have to spend that exact amount. You can always spend less to save money, and there are few reasons you should ever spend more.
Determine the best budget for you and ask your real estate agent for help-seeking the right houses.
You need to think of legal matters when you buy a house before marriage too. It helps both of you avoid any legal complications should a break-up occur.
1. Property Title
Property titles that are applicable for unmarried couples are:
- Joint Tenancy with Rights of Survivorship – This allows you and your partner to get an equal 50/50 share of the property. Also, if one of you dies living there, the surviving party would get the share of the other. This is similar to the standard agreement for married couples when they buy a home.
- Joint Tenants in Common – This title lets you decide the sharing percentage of the property, such as 40/60. But you can choose the common 50/50 share as well. And when one of you dies, the share would be distributed according to the agreement or his or her will. Depending on the situation, for example, it can go to heirs, family members, and relatives, among other legal recipients.
- Sole Ownership – Lastly, the home property can be owned by only one person too; either you or your loved one. This is a good option if one of you makes considerably more money than the other or if one of you doesn’t want any legal obligation. There are many reasons this could be a good option.
2. Legally Binding Agreement
Sit with a lawyer to settle things before buying a property. Sign a legally binding agreement to keep things neat and remember you can modify such documents if needed later on.
There are many crucial points to think about when you buy a house before marriage. But agreeing on what to do in such scenarios can help you have lesser hassles if a break-up occurs.
But with all these points in mind, you’re off towards a more harmonious purchase and future. Talk with a seasoned Realtor before you buy a house for more advice.