While marriage rates may have been on the decline in recent years, homeownership continues to be a goal for many Americans, regardless of marital status. But those who do have plans to marry have the choice between buying a home together before marriage or after.
In fact, about 40% of millennials believe that buying a home together before marriage is an ideal option, and approximately a quarter of married couples in this demographic buy their first home together prior to exchanging vows.
Regardless, you’re going to need a place to nestle in together once you and you’re significant other say your “I do’s.” These days, it’s pretty common for couples to cohabitate together long before marriage, and fewer are waiting for the big day to actually buy their first home with each other.
If you’re in the middle of preparing for your wedding, should a home purchase be part of the plans? If so, should you make this important purchase before or after your nuptials?
Before you decide, it’s important to consider a number of factors and weigh the pros and cons of buying before marriage or after. Here are some tips to help you make that crucial decision.
Understand Each Other’s Individual Financial Situation
Before you decide to buy a house together, it’s important that you both are fully aware of each other’s finances. While it’s ideal for you both to be in similar financial positions, it’s common for one partner to have much healthier finances than the other.
It’s absolutely essential that you have the conversation about your finances long before you decide to buy a home together (and before you get married, for that matter). You’ll want to know about each other’s assets, debt, and even family obligations you may have. This is not exactly the most comfortable conversation to have with one another, but it’s a crucial one nonetheless. Knowing where you both stand financially will help avoid any unpleasant surprises down the road.
Consider How Title Will Be Affected
The title of the home that you purchase will be affected by whether or not you are married. Marital status determines how the title of a property is legally held and how it will be transferred should one of you pass away.
If you’re not married before buying a home together and the title is considered tenants in common, you both have ownership in the home. Should one of you pass away before the other, the deceased person’s share of ownership isn’t necessarily transferred to the surviving owner. Only if that person’s name is specified in the will this happen.
On the other hand, joint tenancy will result in the ownership interest of the deceased partner being automatically transferred to the surviving partner in the event of death.
In some states, only married couples are allowed to hold title as ‘community property’, which is the case in California. If one spouse dies, the descendants’ heirs will only be allowed to receive half of the property. Even if the surviving spouse’s name was not on title, they can still get a ‘community interest’ in the property.
You’d be well advised to speak with a real estate agent or lawyer who will be able to guide you through the process of title transfer, including what happens when one partner dies or the tax implications associated with either scenario. The type of title that is transferred matters, so it’s in your best interests to understand the benefits and implications associated with taking title before or after marriage.
Should You Combine Your Savings?
Obviously, the larger your down payment towards a home purchase, the better overall. Not only will this improve your chances of getting approved for a mortgage, it will also mean a smaller loan amount and a lower interest rate. But should you combine your savings and have one joint account when buying a home?
This is a personal choice and should only be made with careful forethought. Having one account can make paying the mortgage and all operating costs associated with homeownership more simplified. Both of you can set up a joint account whereby payments are automatically made to further simplify things. But doing so can also complicate things if one person makes a lot more money than the other, or even in the event of a divorce.
If you’re not married and unequal contributions to the joint account are being made, you may want to have these details documented in case you don’t end up getting married for whatever reason, which brings us to our next point.
Consider a Partnership Agreement if You Buy Before Marriage
You may have the best of intentions when agreeing to buy a home together before you get married, but anything can happen. As such, it would be wise of you to get a legal agreement drafted up that details what will happen in certain circumstances.
For instance, how will the proceeds of the home be divided if you split up? Will one partner buy out the other? Who will be responsible for any outstanding expenses, taxes, or capital gains?
These questions only scratch the surface of all the potential complexities that may arise should things not pan out the way you initially intended. That’s why having an agreement in place can help iron out these details and avoid ugly battles in court.
Individual Credit Scores Affect Loan Approval
Ideally, both you and your partner will have good credit scores that will make it easy for you to get approved for a mortgage. But if you’re entering a home purchase and one person’s score is poor, your chances of getting approved can be slashed. That’s because lenders typically view unmarried couples as individual applicants, regardless if you’re applying together, while married couples are seen as one unit.
If your partner has a poor score and you are not yet married, for instance, it could impact how the property is titled and who will assume responsibility for the mortgage. If you’re married, however, one person’s higher credit score can be an advantage to the other, as it can eliminate the poorer score from the equation. That said, if only one person with the higher score is applying for the mortgage, only one income will be recorded which could translate into a lower approved loan amount.
Determine Whether the Mortgage Can Be Carried on One Income
If both you and your partner/spouse are signing the mortgage agreement, you are both entirely responsible for the debt, regardless of whether or not one person contributes more financially. If you split up and your partner bails out on their end of the bargain, for example, you will still be completely liable for the debt.
As such, it’s recommended that the mortgage you get can be comfortably paid on one income. That way you won’t be placed in a financial predicament should you split up or if one of you loses your job.
The Bottom Line
Your decision to buy a home before or after marriage should be based on a lot of careful consideration. Not only is the purchase itself a major financial investment, the legal contract that you enter into could impact things should your relationship end up taking a wrong turn. Speaking with a real estate agent and attorney before determining which path you take can save you a lot of headaches in the long run.