Posted: 8:23 a.m. Friday, Feb. 22, 2013
By Elizabeth Rosen
Have you and your partner been considering making the leap to homeownership together?
Buying a first home can be intimidating. There are many factors to think about when you are applying for a mortgage loan and getting ready to take on the everyday responsibilities of being homeowners, particularly if you are a couple. In general, couples looking to buy a house may benefit from certain advantages as opposed to individual home buyers.
This is mainly because your joint income increases your buying and borrowing power.
While the current real estate market remains volatile, it is still a buyer’s market. There is an excess of inventory, many foreclosed properties, and millions of homes with negative equity and homeowners with underwater mortgages.
Try not to be discouraged by this bad news, because a struggling housing market means that people are more desperate to sell and banks are anxious to unload their properties. A down market could help you land a great first home together, whether it’s a fixer-upper with an incredible price tag, or a house that is larger than you would have been able to afford 8 years ago.
Buying a home is exciting, and you can help ensure that you and your partner have a positive experience if you plan ahead and get your finances in order. Looking to the future, you will both need to decide if/how your family is going to grow.
If children are in your plans, this will dictate the size of the house you buy, as well as its proximity to good schools and hospitals. Or perhaps you just want to get a small starter home to enjoy the first few years of marriage before growing your family and upgrading the square footage. Either way, it is important that you contemplate your long-term plans as a couple and as individuals.
Couples who want to buy a home should review their options carefully before making any major financial decisions. Take the time to create a solid game plan and establish a firm budget. Start saving money (if you haven’t already) and work on strengthening your finances. Set realistic expectations and work through the decision-making process together by openly discussing your goals and expectations. Good communication and proper research can help ensure that your investment is rewarding, both personally and financially.
There are lots of incentives for a couple to buy a home before walking down the aisle. Perhaps you and your partner want to take advantage of a promising buyers market, benefit from certain tax breaks, or begin building your equity together. Whatever your particular reasons are, you need to be aware of the obstacles that unmarried couples may run into during and after the homebuying process.
First of all, you should note that unmarried couples looking to buy a house will be evaluated as individuals, not as a couple. Mortgage lenders generally require each partner to apply and qualify separately for a mortgage loan.
This can be challenging for an unmarried couple, particularly if one of them has bad credit or high debt. Since the lender is assessing you as individual applicants, you will also find it difficult to secure a larger loan.
As an unmarried couple making a large joint financial investment, it is important to consider all the “what ifs” and possible outcomes for the future.
What if you need to expand or sell the property? What if you break up? What if one person loses their job or goes bankrupt? What if one partner passes away? Preparing for every potential scenario will help give you peace of mind and avoid a messy ordeal further down the road.
Remember that the laws regarding the breaking up of a co-owned property are mostly designed for married couples, and the legal protections that pertain to unmarried couples are less clear.
If you are a couple making plans to buy a house, you should consider hiring professionals to assist you along the way. It is recommended that you get a team together rather than trying to go it alone, especially if you are first-time home buyers and/or an unmarried couple.
Your squadron of trained professionals will include a qualified real estate agent or broker, a real estate lawyer, a tax attorney, and a financial planner. These professionals can provide guidance and help answer your questions about the homebuying process and the tax implications of purchasing a home together. You may also want to set up a meeting with a housing counselor and explore your options regarding state/local homebuying programs. To find a government-approved housing counseling agency near you, visit the Department of Housing and Urban Development website (HUD.gov).
Keep in mind, you cannot rely on someone else to do all the work for you or to know what is best for your particular situation. Make sure to do your own research and homework as well, and set realistic expectations based on your financial standings and lifestyle.
Never forget that this is a major financial transaction, but also that you are partners who care about each other. Playing nice means you can both profit from this investment, whether you decide to sign a mortgage loan and property transfer agreement before or after you sign your marriage certificate. Working together on buying and taking care of a home is a big milestone — just remember to look before you leap!