Some couples purchase a house before walking down the aisle together. There are various reasons for this. Buying a home before saying “I do” can have advantages and drawbacks.
Purchasing a house as a couple usually results in a joint mortgage application. If a couple buys a home before getting married, one party typically applies as an individual. The approval process and requirements are generally the same for both situations.
Single application
Some benefits of filing a single application are:
- Your debt-to-income ratio will be the only one considered if they are better than your partner’s ratio.
- Your credit history will also be evaluated only if your partner’s credit history is less than satisfactory.
- Having a higher credit score than your partner is another reason some couples file a single application. The other partner’s lower credit score won’t hamper their approval chances.
If your partner has a better debt-to-income ratio than you do, that won’t be considered if you make a single application.
Credit scores, credit and employment history, and debt-to-income ratios are the primary components that lenders review. That’s why evaluating your current income, spending, and credit is essential before applying for a home loan.
Joint application
A few reasons why couples choose to file a joint application are:
- They may be able to borrow more money since their joint income is being evaluated.
- A lower overall debt-to-income ratio as a couple can also improve their chances of being approved for a mortgage.
- If both parties have the same or similar credit scores, it won’t negatively impact the loan decision.
Lenders will focus on the lower two credit scores on a joint application. If one of the couple’s credit scores needs improvement, it could make it more difficult for them to be eligible for a home loan. The loan determination shouldn’t be affected if both persons have clean credit histories.
1. Get preapproved for a mortgage.
One of the first things you should do once you decide to become a homeowner is apply for a home loan. If the lender approves your request, they will provide you with a pre-approval letter. This document will include the dollar amount and terms they are willing to offer you.
The letter doesn’t guarantee that you’ll be able to buy the house you want. However, it can make you a higher priority to sellers than other interested parties who haven’t secured financing.
2. Decide who will be on the property deed.
Homeownership is based on who is listed on the property deed. It isn’t determined by marital status. That information will be used when the title is transferred and recorded. Homeownership can be listed in different ways:
- Tenants in common — Under tenants in common, both parties have an ownership share. This share doesn’t have to be equal. For example, one person could have a 60 percent ownership share, and the other could have a 40 percent ownership share. Each person can borrow against their ownership share if they so choose. When one partner passes away, their ownership share is passed down to their heirs; that share is not transferred to the surviving partner.
- Joint tenancy — Both partners have the same equal share of home ownership. They can choose to borrow against their shares or sell the property. However, that decision has to be unanimous by both parties. One can’t decide to sell or borrow against the home if the other person doesn’t want to.
- Sole ownership—One party will own the home solely. They are the only ones who can sell the house, and they are also the only ones responsible for paying the mortgage, utility bills, and upkeep and maintenance of the property. The other person has no say in those matters.
3. Figure out your living arrangements.
Living arrangements before marriage can be complicated sometimes. Even if you’re buying a house together, it may be difficult for one person or the other to give up their former residence. Things can be incredibly frustrating if purchasing a home together puts a hardship on one or both parties.
Drawing up a cohabitation agreement may make things easier. You can create this document yourself or enlist the assistance of a real estate attorney to do the work for you. Essential items include identifying what happens to the house if you decide to break up, how the proceeds will be divided if you sell the home, who will pay what bills, and other essential attributes that should be included in the agreement. Make sure that you review the contract carefully before signing it.
4. Realize your tax liabilities.
Your marital status can also affect your tax liabilities for the home. Your deductions and exemptions will vary according to your tax filing status. It can also impact your decision to take the standard deduction or itemize your deductions. Talk to your tax preparer or attorney if you have questions or concerns about buying a home before marriage and its correlation with your taxes.
Home buying is a significant decision. It’s one of the most expensive investments many people will ever make, so take all the time you need to determine your course of action. Once your offer has been accepted and the purchase agreement has been signed, it won’t be long until the house you’ve set your eyes on will finally be yours. You can start looking forward to enjoying the next phase of your busy life in a great place you’ll be proud to call home.
