Nonetheless, it’s one of the most complicated financial decisions a millennial couple can make and if the relationship ends, unwinding the arrangement could be particularly difficult. Love may be blind, but that doesn’t mean you have to jump in with your eyes closed. If you’re thinking about buying a home without “putting a ring on it” first, use these tips to spare any potential financial woes down the line.
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1. Share credit scores
The best time to discover you have lousy credit isn’t when finding out if you qualify for a mortgage loan. Do each other a favor and share your credit scores in advance.
Credit scores help determine creditworthiness, and thus, your ability to get a loan and competitive interest rate. If one of you has a bad credit score, it may be worth considering if it would be more advantageous to have the person with stronger credit purchase the home.
2. Open a joint account
3. Consider potential costs and outcomes
Breaking up isn’t the only potentially challenging relationship outcome. One of you could lose a job or have an unexpected illness or injury that eats up your savings. With that in mind, it’s important to not only know the maximum amount you can borrow, but also, the maximum amount you can pay as an individual in the event one of you has to assume the entire debt of the mortgage. Stretch your budget too far, and any unexpected expense could send you into a financial tailspin.
4. Put it in writing
Have a real estate lawyer prepare a written document that outlines the full details of your arrangement. This will give you each the ability to protect yourselves, financially, at a time when you have each other’s best interests in mind. Here’s a list of things to consider including:
• What is the percentage of equity each person is entitled to in the event of a breakup?
• What will happen to the house if the relationship ends?
• Whose name will be on the deed, one or both of you?
• Who pays which bills?
• What happens if someone can’t pay their share?
5. Title it right
A title is a clear, outlined contract that specifies the division of property among owners. Typically, the title will be in both person’s names, giving each an opportunity to build equity in their own investment.
If both names go on the title, each can hold the title as “joint tenants” or share the title as “tenants in common.” Joint tenants have equal ownership of the home, and if one tenant dies, the remainder of the property is transferred to the remaining tenant(s). Tenants in common own an unequal percentage of the property. If one of the home owners dies, ownership is not automatically transferred to the remaining tenant(s) unless specified in a will.
If you or your partner are listed as the “sole owner” of the property, you alone call the shots and determine if or when the property is sold and who owns the property if you die. If going this route, it is even more important to create a contract (as mentioned above) that outlines who is entitled to the home should you die or the relationship ends.
BONUS: Test the waters (this advice isn’t financial, but just as important to consider)
Okay Millennials, have you tested the waters by living together first? Did you know he trims his nose hairs over the kitchen sink? Have you ever gone to sleep next to her as she wears a bright green mud mask? Does your mate like to stay up late or have a tendency to snore? Do you leave dishes in the sink and put empty milk cartons back in the fridge? Do these tidbits make you love your partner more or make you want to die?
Aside from learning about their weird habits, living together can help you find out if you can be compatible roommates for the long haul. It will also let you know if you can handle bigger challenges, like buying a home as a couple.
Hey millennials, ready to take the next big step into home ownership? Contact me today so I can help lead you through the home-buying process in the right house and neighborhood for you. And remember, friends don’t let friends buy a home without Agent Lady!
About Agent Lady: Cherise Wynne is a leading real estate agent in Philadelphia, helping home buyers and sellers navigate the City of Brotherly Love, with a special focus on first time home buyers. To chat about getting started with your first time home buying experience, click here.
