Should We Buy a Home Before Marriage?
There are a few key things to consider
Every couple engaged to marry wants to choose a home to buy as carefully as they selected each other. That means working through some key details about this major purchase.
Whether or not they choose to tie the knot, every couple should understand and iron out their differences before taking the plunge on a home purchase. Nothing prevents you from buying before the nuptials, but laws vary on property ownership according to the state you live in. Let's take a look at the most important things you should consider before buying.
The Type of Home You Want
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 ones, 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, and it's especially relevant if you buy together outside of marriage. Some types of titles carry tax consequences. Some states restrict the ways to hold title. The most common options for unmarried couples include:
- Joint tenants: Each partner has an equal share in the home and full rights to ownership if the other partner passes away.
- Tenants in common: This arrangement can be set up in a number of ways, and the property can usually be split in various proportions between the two partners. Upon the death of either partner, the deceased person's share passes to whomever they designate in their will, which may or may not be their live-in partner.
- Sole and separate: One person has full legal claim to the property.
You should talk with a lawyer to find out your state laws and how holding title will affect you.
The costs involved in buying a home are, of course, significant, and this can be more complicated if you haven't already joined finances in marriage. Apart from making a down payment, 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 to contribute 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.
In this case, 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, include:
- FHA loans: Buyers can purchase with as little as a 3.5% down payment because 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 only interest for a set number of years lowers the monthly upfront cost but increases your payment and total interest in the long run.
Be sure you're both comfortable with the terms of the mortgage and that you understand who is liable for the loan if you separate at some point.
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 with 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, include:
- 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?
Agreeing to these terms well before any separation in the relationship will help prevent a messy fight over the house if the relationship doesn't work out.
The Bottom Line
Ultimately, the decision of when to buy a home is up to each individual couple. Buying a home before marriage is a good opportunity to practice the open communication you will need to carry you through the relationship successfully. You may decide to wait, or you may take the plunge and buy. But, either way, you've gained new insight into your relationship.