Don't put your finances -- or relationship -- on the line by acting before you're ready.
With mortgage rates near record lows, many Americans are shopping for a home right now -- even though prices have also been driven up in many parts of the country.
If you're hoping to score a mortgage at one of the lowest rates in history and you're financially ready to become a homeowner, you may be wondering if it makes sense to find a real estate agent and begin your search.
But if you're half of a couple, there's another thing you have to consider: whether you and your partner are ready to buy a house together and commit to a major joint financial obligation. To help you decide if this is a good choice to make as a couple, here are a few key questions to ask yourself.
Have you shared details on income, debt, and credit score?
If you're applying jointly for a mortgage, lenders will consider your individual credit scores as well as your combined income. As a result, you'll want to make sure you're both fairly well-qualified borrowers to maximize your chances of getting approved at a good rate. Your lender is also going to look at your income relative to your debt -- which means your efforts to get approved could be derailed if one or both of you owe a lot of money.
Aside from your debt, credit, and income affecting your loan, it's also important to share details about these things with your partner. They can provide insight into your borrowing habits and your financial compatibility.
If you have an 800 credit score and your partner's score is 550 and there's not a good explanation, this could be a sign you'll have long-term conflicts because of your differing borrowing habits. It could also be an indicator that you're taking a big risk borrowing with someone who doesn't have a habit of paying back their debts responsibly.
Have you already combined various aspects of your financial lives?
A mortgage is a major commitment. Monthly payments add up to hundreds or even thousands of dollars and making them on time is critical. It's probably not the first joint financial commitment you want to make as a couple.
If you aren't already paying some bills together or sharing a bank account, you may want to start with something like a joint credit card. If you can successfully navigate co-borrowing on a smaller scale without conflict, it's a good sign you can handle sharing a mortgage payment.
Can you talk openly about money?
You'll need to be able to discuss issues such as how much to borrow, how you'll split the mortgage bill, and how you'll deal with other costs associated with homeownership -- such as property taxes, insurance, and ongoing maintenance expenses.
If you can't easily address these issues -- and aren't confident you can discuss any unexpected costs of homeownership and come to an agreement on how to cover them -- then you shouldn't commit to a long-term loan together.
What would happen if you broke up?
Even in the best of circumstances, things can go wrong in a relationship. And if you have a shared house and a joint mortgage loan, this can be a big problem.
Handling a joint mortgage is difficult even in a marriage situation when a couple divorces. A decision has to be made on what will happen to the house. And something has to be done about that shared loan. When you're legally wed and split up, a judge helps navigate this process based on divorce laws. But things are more complicated if you're coupled up but aren't married.
There's also another caveat to consider. If you and your partner apply for a mortgage together, the lender will consider you both responsible for it even if you split up and one of you keeps the house and agrees to pay the loan. If your partner ends up defaulting, your credit could be destroyed by a foreclosure. And even if you plan to keep the house, think about whether you could afford it with only your income.
These are all essential things to think about when you're deciding whether to buy a house together. Don't even consider calling an agent or talking to a mortgage lender until you've talked with your partner about these issues and made certain you're both on the same page. Otherwise, your homeownership dreams could turn into a nightmare that you both come to regret.
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