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Navigating Home-Purchase Finances With Your Significant Other

Navigating Home-Purchase Finances With Your Significant Other
Many committed couples strive toward homeownership as a shared life goal. A home is an investment, but of course, it can be much more than just equity and appreciation—it is a base for building families and strengthening relationships. Increasingly, couples purchase real estate regardless of marital status. Whether or not you are married, the home-buying decision impacts your relationship considerably and can be the basis for relationship strife or joy. Here are some ways to approach the decision in a way that can make home buying pleasant and healthy for your relationship.  

Open up the lines of communication

As a major financial decision, home buying cannot be treated as a project with separate teams. You and your significant other should work together and be on the same page regarding goals and desires. Because financial status impacts purchasing power and ability to pay monthly expenses, couples must put all their cards on the table. This doesn’t necessarily mean that you have to combine your finances with your significant other, but vague or incomplete information about each other's finances can breed resent, anger, and financial problems. For example, if one of you earns more, it may not make sense for you to split expenses down the middle, or maybe that’s your preference. Either way, finances should be demystified.

Fostering communication about finances helps if either one or both of you experience financial difficulty. Hiding bad news, secret purchases, or debts is a common source of relationship discord that can be avoided if both partners are comfortable with discussing finances. And when buying a house, you’ll need to know each of your financial strengths and weaknesses.

What you need to know before house hunting

Before you start looking at real estate listings or drive around to open houses, you should know your price range, and your mortgage qualification is going to dictate that figure significantly. Your credit rating will determine your mortgage payment and your ability to obtain a mortgage in the first place. Since very poor credit can stop your house purchase plan dead in its tracks, knowing and understanding you and your partner’s credit score and history is a primary step in the process. Get a copy of both your credit report and score from a credit-reporting agency. Discuss problems openly and be prepared together to speak to a lender.

It may be the case that one of you has considerably better (or worse) credit than the other. If so, speak to your lender about how to best apply for financing.  

Mortgage approval basics

Banks will also base loan approval in terms of your income. You can do a rough estimate of your mortgage affordability by looking at conventional financing underwriting debt-to-income ratios. Guidelines call for a housing expense that is less than or equal to 28 percent of your pre-tax income. To determine this, add up you and your partner’s monthly income and multiply by .28. The result is your maximum total monthly housing payment, which includes the mortgage, taxes, and insurance. Also, your total debt-to-income ratio (including all of your other debts such as car payments, student loans, and credit cards) should not exceed 36 percent of your proposed payment.

Envisioning the future

Beyond payment ability and credit, you should openly communicate nonfinancial matters such as your plans. Do you both have the same thoughts on children, where you want to live in 10 years, and where you hope to retire? Clear communication now can avoid either of you feeling trapped or dissatisfied in the future.

Getting it in writing

If you are unmarried, there will be particular legal consequences of the financial decisions you make with your partner. You should speak to an attorney and craft an agreement that is mindful of both of your needs and which outlines a course of action if you part ways. Documenting the initial investment and responsibilities of each party is helpful for the future.

Communication is crucial to a successful life partnership, and the same applies to the financial collaboration of homeownership. By discussing your financial strengths and weaknesses and your goals, you will both be on the same page—an ideal starting point for your future.

Photo Credit: Pixabay

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