A couple in love will show their commitment to each other with an engagement ring. But, the trend has changed these days as many couples seal their love for each other with a set of keys to a newly purchased house. Especially, a good number of Millennials consider buying a home together before getting married as a good financial move.
Is it a good idea to purchase home jointly before getting married? Well, it depends because not every relationship ends up in marriage and the credit score of you and your partner also plays a major role. Things can get messy if you split up or anyone of you has a poor credit score.
What should you do to avoid a potential financial heartbreak? Follow these tips:
Talk thoroughly about the possible scenarios
The responsibilities of married couples regarding mortgage and homeownership are legally bound, which is not the case for unmarried couples. So, you have to make everything legally binding by drawing up a legal document that will cover all the individual responsibilities in every possible scenario.
What happens if you split up? What if you want to move out and let someone else live in the house after the breakup? What will one partner do when another partner gets a good job offer and moves to another city?
You have to talk these things with your partner and write down the solutions to the problems that could arise.
Compare the credit reports
To purchase a house together, you have to share details about your income and savings with each other. It helps you to figure out how much you can afford. The credit reports are another financial information that should not be left undiscussed.
The lenders consider the married couple as a single unit but couples out of wedlock will be evaluated as individuals. In that case, one’s poor credit score will affect will affect both of you and your ability to secure a loan and a good interest rate. You have to decide whether you want to secure a better rate by applying solo (who has the better score) or share the mortgage responsibilities no matter what the rate is.
Estimate the amount of the down payment
The standard down payment amount is 20% of the total price of the home. Most couples can manage it together but what if one of you have less savings and can contribute less toward the down payment? Besides, you have to pay the closing costs too, which could be anything between 2% and 7% of the purchase price.
In that case, the partner who has more savings can pay the major share while the other one will repay the difference gradually. Thus, you both can be equal partners in ownership. You can make a legal document or not (if you are really committed and trust each other).
Open a joint account
If you are determined to take the financial venture together, set up a joint bank account to deposit and pay for all the related costs including property taxes, insurance, mortgage installments, maintenance and upkeeps, and other expenses.