If you’re a newly-wed couple getting ready to invest in a joint home, that could be one of the best decisions you make. Owning property together seals your bonds and lays a “concrete” foundation for your relationship. But, before you start looking for homes or discussing down payments, you may want to remember that buying your first home will involve a bunch of legal and financial ramifications. It is advisable to explore the entire scope of the commitment you’re getting into well in advance.
Here are a few fundamental tips to keep in mind.
1. Give Your Marriage at Least a Couple of Years
Living together as an unmarried couple is a lot different from life as a newly-wed couple that is legally married. Spouses need time to understand one another and their views on money and sharing expenses. It is not uncommon for people to keep their financial status, actual salary, and investments hidden from their partners before and sometimes, even after marriage. You’ll need to be confident about each other’s future career prospects and plans for a family before you consider investing in a home together. Like the expert lawyers at Smith & Eulo Law Firm advise, give the marriage time to stabilize and get ready to be upfront about money issues. A reasonable amount of time would be a couple of years.
2. Work out the Title and Ownership Details
An important decision to make when buying a home as a newly-wed couple is about the ownership and title. Discuss whether or not you wish to share an equal ownership in the property. In some states, married couples can buy community ownership where they share the title of the house. If any of the spouses does not want the title of the house automatically passing on to the surviving partner, he or she must draw up a will specifically stating the names of the heirs.
In the event that one of the partners expires, the property becomes a part of the deceased person’s estate. Do keep in mind that in states where there are community property laws are in force, creditors can attach the property owned jointly by the married couple in case one of them passes away and has debts. Succession and ownership aside, the newly-wed couple must also draw up legal agreements about what happens to the co-ownership in case the marriage ends. Or, who inherits the house in case one of the spouses has children from a previous marriage. Further, joint owners need not necessarily have equal shares in the house. The legal contract will clearly state the percentage of equity each spouse will have.
3. Your Credit Scores Will Influence Eligibility for Mortgage
When a newly-wed couple applies for a mortgage, lenders take into account the credit scores of both spouses. Like this article on GoBankingRates recommends, get your scores evaluated when making the decision to apply for a mortgage and invest in a home. You may also want to pay off existing unsecured debts so you can lower the debt to income ratio. Unless both spouses have a comparable credit history, mortgage providers will likely take into account only the ranking of the partner who has a higher score and better financial stability. But, if both of you have great credit ratings, you could qualify for a higher mortgage. In case your joint credit rating isn’t so good, you might want to wait for a couple of years and build that rating before you decide to invest in a home.
4. Prepare for the Possibility of the Marriage Ending
The last thing a newly-wed couple wants to think about is the possibility of divorce. But, like the folks at Realtor warn, if you’ll invest a larger part of your finances in the house, protecting your investment is a prudent move. This factor becomes especially important if you’re the only earning partner or contributing a higher share toward making mortgage payments. While most couples create a joint account to pay family expenses, chances are that only one of you takes care of additional costs like, for example, paying taxes on the house or maintenance. Draw up a legal document that clearly states how the home equity will be divided in case the marriage ends. Sorting out ownership issues at the onset is essential so you won’t end up engaging in a long-drawn divorce settlement.
5. Prepare for the Possibility of the Family Growing
Having kids means raised expenses with both parents having to share child-rearing responsibilities. In case one of you opts to stay home to take care of the kids, the entire burden of paying mortgage could fall on the other partner solely. Also factor in the possibility that the marriage ends, the home is still not paid for, and a larger chunk of the payments have been covered by one partner. You may want to discuss splitting the ownership in each of these cases.
New Couples Must Make Sound Decisions for the Future Together
Buying a home as a newly-wed couple typically urges you to make decisions about the family that you may not have given any thought before just as this article on CreditKarma outlines. For instance, health care directives in case one of the spouses needs long-term care. Or, if one of the parents is not capable of making decisions and is mentally incapacitated. You’ll also talk about how to continue making mortgage payments if one partner is unable to work because of say, health problems or family commitments. Getting adequate insurance for health, life, home, and auto are all additional decisions you’ll take because they’ll influence the amount you can put down toward down payment and finalizing the monthly mortgage payments.
Statistics indicate that around 80% of Americans invest in their first home in the initial two years of getting married. That’s probably the best time to begin building a life together. The decisions you make at this point will pave the way for a well-planned future for the family.
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