Buying a home with a significant other is a major decision. It’s easy to be caught up in the idea of finding the right home for your little family and how you’ll set it up together. Before you start browsing an online listing site, it’s important to have an honest conversation with your partner to make sure you’re on the same page.
Communication is a key part of any relationship, especially when it comes to making a large financial decision like this. Here are six crucial questions you need to ask before you begin touring homes.
Why do we want to buy a home?
Discussing your reasons for buying a home with your partner will help you identify your personal motivations and understand your partner’s view. Talk about your dreams and goals for the future and how owning a home supports those desires.
Be sure that it’s not simply because buying a home is “the next step” or because interest rates are favorable but because you’re financially ready to manage the responsibility of homeownership and are ready to settle down.
How much debt do we have?
Talking about money can get tricky but it’s time to face the realities of your finances. Both partners should share everything about their finances, especially any debt. Being upfront about your debt allows you to adjust your home-buying approach.
Your ability to secure a mortgage with a favorable rate depends on your debt-to-income ratio (DTI). DTI is calculated by dividing your total monthly debt payments (including student loans, car loans, credit card debt, and any other personal debt) by your monthly income. Lenders use this ratio to measure your ability to repay debt. If you’re applying for a mortgage with your partner, lenders will calculate a DTI for both of you.
Who will be on the mortgage and title?
The obvious answer may be, “Both!” but depending on your financial situation, it may not be the best option. Unmarried couples apply for mortgages as individuals, so it’s usually best for the partner with the strongest credit score and finances to apply in order to get the best terms and rates.
The title provides proof of ownership and there are several ways to hold one on your new home. The way the title is worded impacts how ownership is transferred. Here are some of the common options:
Sole ownership: one partner owns the property outright.
Joint tenancy: a co-ownership agreement between two or more people, with the share of the other partner passing to the surviving owner(s) upon death.
Tenants in common: an undivided (this can be equal or unequal shares) interest between co-owners. In this option, tenants in common hold a title independently, with their share going to their heirs instead of the surviving co-owner.
The way your home is titled can impact the taxes and fees associated with selling your home when the time comes. Consult with a real estate attorney or tax advisor to determine the best option for your situation.
How much can we afford?
Don’t base your budget on your mortgage preapproval. Map out your current income and expenses to determine how much you can comfortably afford. Mortgage calculators can give you an estimate of what you can expect to pay each month. Your housing payments shouldn’t exceed 30% of your gross monthly income (pre-tax). Your budget will determine everything else: the neighborhood you buy in, home features, even your down payment.
How will we split the costs?
Layout how you and your partner will split the housing costs, including the down payment, monthly mortgage bills, home insurance, property taxes, and closing costs, as well as the regular expenses like HOA fees, utility bills, and maintenance.
Decide what works best for your situation, whether that’s a fifty-fifty split on everything or if you’ll be responsible for specific expenses. There’s no right way to split these costs! Have a conversation with your partner to figure out what is fair and reasonably affordable for both.
What happens if we break up?
This is an important, albeit uncomfortable, conversation to have if you’re unmarried. No one wants to consider negative things happening, especially while things are going well, but you need to think about all the possible outcomes for your relationship and create a plan on how to divide your shared asset should you end your relationship.
Purchasing a home is a major milestone that will impact your relationship so it’s essential to have an honest and open conversation with your partner. Once you’re on the same page, you can begin your venture into homeownership together.
SummerHill Homes builds new home communities in desirable locations throughout the Bay Area. Start your search today by visiting SummerHillHomes.com to learn more about our communities, view virtual tours, and schedule a private tour and get ready to find your new home.