Would you exchange keys with your partner, instead of rings?
Well, why not?
Stop right there. If you’re thinking “Hey, I’m not ready for this marriage thing, so let’s just shack up somewhere out West as a trial and see how we go, yeah?”, then please bookmark this post, glue it to your eyelids and learn it off by heart.
Buying a house is Serious Business.
It’s is arguably more of a financial commitment than walking down the aisle, so it’s imperative you set up some ground rules, long before you start decorating the lounge room together.
If you’re serious about each other, and building a life together under the same roof, buying a house with your partner requires that same level of commitment you see in the eyes of the just married.
In addition, there’s a few things you should prepare for before you sign on the dotted line, or even submit the home loan application to your broker.
- Fix your bad credit rating (or theirs)
In an ideal world, the banks would look at just one credit score and choose the best of the two. In the real world, your partner’s bad credit score could sabotage your home owning dreams.
Lenders have access to all of your financial history. If you were late paying your phone bill a couple of times, your provider sends that information off to an external credit reporting agency. They keep all of your financial history on file, and come up with a credit score.
If you don’t know what your credit score is, we recommend using Veda’s free service. If it’s looking less than ideal, remove your jaw from the floor, then go read our post on how to fix a bad credit rating.
- Talk about debt
Amongst a whole list of items your mortgage lender will test you on, debt is one of the major factors that will determine the success of your home loan application. When you’re thinking about applying for a home loan together, be completely transparent about your amount of debt with your partner. According to research from Barclay’s earlier this year, Australian’s have the highest amount of debt in the world. Here’s a sobering thought – our $1.6 trillion in consumer debt is actually more than our Gross Domestic Product. Ouch.
Consider HECS debt, credit card debt and personal loans. The more debt you both have, the less likely you’ll be able to get a low rate mortgage, and avoid Lender’s Mortgage Insurance (LMI).
- Tenancy arrangements
Most couples will opt for what we call ‘joint tenancy’. This means the home is in both your names, and there’s just one share of the property. The other option is a ‘tenants in common’ arrangement, which is what a group of friends might do if they were getting a Property Share Loan. The difference is what happens to the property should one party pass away.
Let’s get morbid for a moment.
If one of you were to pass away, the other party (your partner, or yourself) will retain the full title of the home.
On the other hand, with a tenants in common arrangement, the person’s share goes per their will. This means that if you or your partner have kids from a previous marriage, you might sign a tenants in common agreement so that the kids will inherit their half of the property rather than other partner.
But it’s up to you. You can ask your friendly mortgage broker for more information on this one, but we can’t give you couples counselling. If you’re an unmarried couple thinking of buying a home together, who gets what when the other goes is a conversation for another room – yours, or your counsellor’s.
If you’re in love and unmarried, buying a house sooner rather than later means you might never have to say never to entering the property market. With house price growth in Sydney slowing as of September, it looks like buyers might be clawing their power back. But don’t see this is an opportunity to test your relationship for the long run – because buying a house is just as big a step as getting married.
Are you ready for happily ever after? Then godspeed, first homebuyer. See you on the other side of home ownership.