Should We Wait to Buy a Home Before Marriage?
Every couple engaged to marry wants to choose a home to buy as carefully as they selected each other. Any committed couple wanting to make a home purchase, whether or not they choose to tie the knot, should understand and iron out their differences before taking the plunge. Nothing prevents you from buying before the nuptials, but laws vary on property ownership, according to the state you live in.
Steps to Home Buying
Come to an agreement on essential home buying points before engaging the services of a real estate agent. If you both share common tastes, this should not be difficult. Here are areas that matter:
- Types of homes: Some couples can't agree on style. One may enjoy the classic details in older homes over newer, while the other may insist on buying new construction. A compromise might be buying a home on an infill project. This means building on an unused lot in an existing neighborhood.
- Neighborhoods: Narrow down your top three choices for neighborhoods and drive through in the morning, afternoon, and evening. Talk to the neighbors who live on streets where you might consider buying. Consider cruising the area on the weekends, as well as during the week, to get an idea of traffic and neighborhood activities.
- Price Range: Picking a price range is easier if you talk to a mortgage lender to find out how much home you can afford. Some couples prefer to choose a home price based on one income, in case one person ends up unemployed, becomes ill, or for some other reason, loses a monthly income.
How to Hold Title
The manner in which you acquire title has a bearing on legal ownership and on transfer in the event of death. Some types of title carry tax consequences. You should talk with a lawyer to find out your state laws and how holding title will affect you. Some states restrict the ways to hold title; for example, only married couples can hold title as community property. The most common are joint tenants, tenants in common, and sole and separate.
Apart from making a downpayment, you will also incur closing costs. Total those sums and decide how much each will contribute to the purchase. Most people split the finances 50/50, but sometimes one person has more money than the other.
In the event of unequal cash contributions, couples might assign a percentage number and base ownership on that percentage. For example, say a couple has a joint income of $160,000 per year. If Judy makes $90,000 and her partner, Sharon, earns $70,000, Sharon's income makes up 43.75% of the household income.
So, Sharon and Judy may agree that Sharon's financial contribution to the down payment and closing costs should be 43.75% of the total, leaving Judy to pick up the remaining 56.25%. Couples who apply proportionate shares to the acquisition often use that same percentage to figure out who pays how much toward the mortgage payment.
You'll quickly find out if your partner or soon-to-be spouse is a risk taker, depending on the type of mortgage they desire. Fixed-rate mortgages carry little risk because the interest rate remains the same for the entire term. They sometimes carry higher interest rates than adjustable-rate mortgages where rates go up or down at specific intervals. Other popular types of mortgages, if you qualify, are:
- FHA loans: Buyers can purchase with as little as a 3.5% downpayment as these loans are secured by the U.S. Federal Housing Administration.
- VA loans: These no-money-down mortgages are available to members of the military and qualified veterans.
- Interest-only hybrids: Paying interest only for a set number of years lowers the monthly upfront cost.
Home-Buying Partnership Agreement
Although marriages, unions, and partnerships start out amicably, sometimes couples lose their focus and wander off in separate directions. For that reason, it's a good idea to put all financial agreements into writing. Contact a real-estate lawyer.
Decide in advance what will happen if you decide to part company. Will you sell the home or let one party buy out the other party? Questions to address if you sell, for example:
- How will you determine the price?
- Who will choose the listing agent?
- How will the net proceeds be divided?
- What will you do if you end up having to pay to sell because after deducting costs to sell, you have no equity?
- What happens if your home doesn't sell?
The Bottom Line
Buying a home before marriage is a good opportunity to practice the open communication you will need to carry you through the relationship successfully.