So, it is your first time buying a house with your significant other. Before you embark on the process, there are some questions to be asked if you have not already.
To make smoother what can be an already stressful situation, read further to find out about what needs to be addressed so you are not blind-sided.
Let’s talk about debt baby
This may be a conversation that has already been had if you both are serious enough to be making a huge Real Estate investment together.
If not, it is certainly the question that should be at the top of your list.
Your debt-to-income ratio is one of the largest deciding factors that lenders use to determine how much of a mortgage you will be eligible for. The more debt you and your significant other have, the less you may qualify for.
For example, if you and your partner are paying $1,000 in debt each month and making a combined $6,000 in gross income – this translates to a 16% debt-to-income ratio. Ideally, you do not want your DTI ratio to exceed 36% as this tends to be the cutoff for many lenders and loan types.
Have an upfront and honest conversation about what each of you owes as to not be surprised when the numbers come back.
How much can we afford?
Of course, you will have a better idea of how much you can put towards a monthly mortgage payment after squaring away your DTI ratio. However, there are other factors to consider:
- How much is being put towards the down payment?
- What is your “comfortable” monthly payment? Meaning, what is the max amount you and your partner can pay monthly but still have enough left over for other expenses such as entertainment.
- How much are utility costs in the area we are looking to buy?
- Can we afford to pay private mortgage insurance if we do not have enough for 20% down?
- Do we know about all the other fees associated with buying a home?
What are we looking for in a house?
A good way to go about this is for each of you to make a list of where you want to live, and your needs versus your wants in a home.
You can then sit down and compare your lists and sacrifice or narrow down where needed.
Also, be sure to have a conversation on whether this will be your starter home or your forever home.
A great way to be sure you are both on the same page is to attend a few open houses. This way, you can both point out your likes and dislikes.
Remember: relationships are all about communication and compromise.
No happy couple wants to ask this question. However, it is important to be upfront and honest in order to avoid disaster.
So, what if you break up? Do you sell the house? Or should you refinance and take one of you off the mortgage? Do you become investment partners and rent out the property?
It is also important to note that if you are both unmarried, it would be wise to include in the purchasing agreement that you both claim joint tenancy with the right of survivorship. This means you both have equal say and interest in the property unless the other dies, then the property conveys to the surviving partner.