When you buy a home, your lender will take a good long look at your financial history. They want to see that you are in a strong financial situation to purchase a home.
Before a lender ever gets that chance, you should have taken the same long look at your own financial situation. You will consider the pros and cons of renting versus buying, your long term financial goals, and whether this seems like the right decision for you at this point in your life.
If you are in a long-term relationship and plan to buy a house with your partner, you’ll need to take the same look at their financial situation, and the financial situation of your relationship so far.
You’ll also need to consider factors like the worst-case scenario in terms of your relationship. This is a larger factor when you’re unmarried.
Marriage is a contract, and Texas has laws that would help divide assets in the case of a divorce. When you are unmarried, there are things you’ll need to do to protect yourself, just in case. It’s not about believing that something will happen to your relationship.
This is about empowering yourself so you are making smart decisions for all possible eventualities.
Applying for a Mortgage Together As An Unmarried Couple
If you were concerned about your marital status making it difficult when you go to apply for a mortgage, don’t worry about it. The lender isn’t overly interested in this factor.
Your partner’s credit score will be an issue though. If you’ve never asked to see their credit report before, now might be the time. If you have a low score, together, you will be offered a higher interest rate on your mortgage. You are taking out this loan together, so you are only as strong as your weakest link in this situation.
If their credit score is too low, you could be denied the mortgage.
Keep in mind that student debt will lower your debt to income ratio, which will be a large factor when applying for a mortgage.
Handling Your Payments As A Couple
Before you make a move to take on such a large financial obligation together, it’s a good idea to sit down and thoroughly go over all the costs of buying a home.
Buying a home requires budgeting and planning. This is even more true when you are doing it as a couple.
Worst Case Scenarios
If, for example, you bought a house together and then eventually split up; you are still both individually responsible for the mortgage payments. If your partner decides to leave and not pay at this time, you can’t simply say they didn’t pay their half and hope that the lender will understand. You will still be responsible for the full payment. They will be as well, but it’s unfortunately common for people to split up and then simply abandon the mortgage payment.
Eventually, one of you would have to buy the other person out of the mortgage. This would be a very large financial stake. How would you handle that? Who would take the property, and would they be able to afford it?
If you split up, would you sell the property? Who would be in charge of choosing the listing agent? Are you making even monthly payments, or is one of you paying more on the home? If you had to sell the home in the case you split up, would this affect how much money each of you received for the sale?
These conversations may be uncomfortable, but deciding ahead of time will be better for both of you than having to hash out these details later.
It’s More Than A Mortgage
The mortgage isn’t the only factor to consider when you’re buying a home as a couple. If you’ve watched any home-buying shows on television, you’ve likely seen an episode or two with a couple arguing over what they are looking for in a home. Avoid this moment for yourselves and come to an agreement on what you’re looking for early on.
This means you’ll need to discuss home buying points like the neighborhood you want to live in, how much money you’re willing to spend, and the type of home you want to live in. What are your top three priorities as individuals? Can you make that work together in one property? What are you willing to compromise on?
The Title
Texas is a community property state, so when you are married your spouse acquires half of the property. When you are unmarried, it is wisest to talk to a lawyer to make sure you are both covered on the title for your home.
This is the document that says who is the official homeowner. If you are both buying the property, it’s important you both have paperwork that says this. This isn’t only important in the case that you split ways.
There are a number of circumstances that could come up where it would be important for you both to be able to prove you are the owner of the home. Take the time to visit a lawyer and make sure all the details are worked out to protect both of you.
Have the Tough Talks
Buying a home should be exciting! Get the tough conversations out of the way early on. Discuss money and the things you can both do now to protect yourselves in case something goes wrong later.
Then, move on to discussing what you are looking for in a home. Once you have those talks out of the way, dive into the home buying process and get excited to become homeowners.
Have Questions? Ask Rene!
