3 Tips for Preparing to Buy a Home With Your Partner

Making the decision to buy a home is exciting, scary, and a bit overwhelming when you’re on your own. Purchasing a home with your partner further changes the dynamic of the buying process. While having a supportive partner to navigate the stressful parts is helpful, making both parties happy with the buying decision will likely require compromise.

If you think you’re ready to take the next step and make this joint purchase together, here are a few things you need to consider.

1. Talk About the Financial Stuff

Finances are the first thing you should be talking about before you start looking for a home. Both parties must be transparent about their finances, goals, and how much they can or want to spend. This is especially important for couples who aren’t married or who plan to split costs down the middle.

When purchasing a home, your lender will conduct income verification to determine how much loan you qualify for. You and your partner should have already the needed information at the ready before filling out an application.

In addition, both you and your partner will want to take the following steps:

Check Your Credit Scores

Not all lenders use the same credit scoring system, but it’s helpful to have at least a baseline of where your credit scores sit. The two best-known credit scoring models are FICO and VantageScore. While Credit Sesame or Credit Karma will provide credit scores for free, their results may not be as accurate as you need. You may want to consider paying to see your credit scores through one of the three major credit reporting bureaus.

Knowing your credit scores will help you determine how likely you are to get approved and what terms you could qualify for. With some loans (e.g., an FHA loan), borrowers can get away with credit scores as low as 580. However, you’ll qualify for much better rates with credit scores north of 660.

Consider Debt-to-Income Ratio

How much of your monthly income goes toward paying debt? Most lenders only offer mortgages to borrowers with a debt-to-income ratio of 36% or lower (meaning debt repayment consumes 36% or less of your monthly income). While some lenders will allow a DTI of up to 43%, it’s better to have more budgetary wiggle room in case of emergencies.

Figure Out a Budget

Speaking of budgets, how much do you want to spend monthly on your mortgage payment? Remember that if you can’t put down at least 20% of the home’s purchase price, you’ll have to pay monthly for private mortgage insurance. You should also factor in property taxes and homeowners insurance costs.

Set a budget before you get prequalified for a loan. Sometimes, a lender will offer you more than you think you can afford. While taking advantage of the extra funds is tempting, having a budget beforehand can keep you from taking on overly burdensome debt.

2. Take Legal Considerations Into Account

When discussing your home-buying prospects, be clear about who will be on the home’s title and who will be on the loan. The legal ramifications of these details can be vital if something goes wrong with your relationship.

The most important thing to note is that the mortgage loan does not determine property ownership. The title of the home does. One party could be financially responsible for the house but have no ownership rights if their name isn’t included on the title.

Put Things in Writing

Unmarried couples often opt for joint tenancy, which offers 50/50 rights to the house. You should also consider what could happen to the property if one party dies. While these topics are uncomfortable, it’s essential to make sure you’re both in agreement before moving forward.

Consider creating a cohabitation agreement. While it doesn’t sound very romantic, having a written agreement before you tie yourself together financially can protect both parties. Nobody goes into a relationship thinking the worst, but life happens, and it’s always better to be prepared. Your agreement should include who pays what bills (what percentage of rent, utilities, food, etc.) and how property will be divided if you split.

Don’t Forget Taxes

Homeowners may use the mortgage interest tax deduction each year. However, only one person can use the interest as a deduction. So if you’re unmarried or not filing joint taxes, you’ll need to figure out who would benefit the most from the deduction.

3. Be Clear on What Is Essential

Buying a home is the largest purchase most Americans ever make. If you’re going to spend hundreds of thousand dollars on a place to live, you both want to be happy with your choice. As with all major life choices partners make, compromise is vital.

There’s one activity that can help get you both to the same place. Make a list of your five biggest priorities for a home and rank them from least to most important. For example, how important is the specific neighborhood you want to live in? What about the size or style of the house? Access to schools? Proximity to major highways?

Once you both have a list, compare your rankings. That will help you figure out how both parties can get at least some of what they want most in their house.

Look Before You Leap Into Homeownership

While buying a home is exciting, it’s a big financial commitment. Make sure you take the time to have serious conversations about your finances and expectations beforehand. By taking this time to ensure you’re both ready for the investment, you’ll increase your chances of finding home sweet home.