You're sealing the deal on your relationship by buying a home together. Congratulations, it's an exciting time and the start of a happy future sharing your very own pad. So, what do you need to know to ensure smooth sailing? Here we've put together a list of five essential things you should discuss with your partner as part of the process of home-buying.
1. Warts and all history
Just as you've discussed past loves, heartbreaks and life goals, you now need to use the same candour to review your finances. Warts and all. That means being transparent about your salary, student loans, savings, credit card debt, cars loans and whatever else it takes to lay out your financial history. These are the kind of details that will be scrutinised as part of the home loan application process so you should know up front what your joint chances are of being approved.
Every suburb has its preferred pocket – areas that offer better amenities, are cleaner, tidier, quieter, prettier.
Credit history is a significant factor considered by lenders, so it’s essential for you both to get a copy of your credit file before applying for a loan. If you both have a good credit score, you can use this to shop around and get the best deals. Your mortgage broker can also use this as an additional tool to assist in negotiations with lenders. Paying bills late or high credit card debt will work against you, so you may want to take some time out to improve your credit health before applying for a home loan.
If you’ve ever applied for a credit card or loan, there will be a report on you with a credit reporting agency. You should check your credit report every year to make sure there are no mistakes that could affect your rating.
2. Choose an ownership type
When buying as a couple, you need to choose your preferred type of ownership structure. It’s a decision that determines how the home is divided and sold if your partner dies.
Purchasing as a Joint Tenant requires both partners own the property together equally and the ownership of the home passes to the surviving partner (known as ‘’right of survivorship”). This type of ownership structure can be ended if your relationship breaks down and your partner transfers the ownership to you, or you buy out the other’s share.
If you purchase as Tenants in Common, there is no right of survivorship. Instead, it is your Will that determines who receives your share of the property. Under this ownership structure, you and your partner can each own an individual share of the home based on the percentage you invested, or you can own equal shares.
3. Decide who is paying for what
There’s an extensive list of costs associated with property purchase, so it pays to work out in advance how to split the expenses. Loan fees vary from lender to lender but may include an application fee, valuation fee, rate lock, title insurance and Lenders Mortgage Insurance. Legal fees, stamp duty and title insurance also have to be budgeted for.
Put these expectations in writing, or have a legal agreement drawn up that outlines in detail each parties’ contributions. Even after you have bought the property, keep a written record of who pays for what, whether it’s a kitchen renovation or new deck.
4. Are parents getting involved
Your parents’ financial contribution can be a big help when buying your first home with your partner. However, it’s essential that parents understand the legalities of what they’re getting involved in, especially if you fall behind with mortgage repayments or split up with your partner. They must be comfortable with the possible scenario that if your relationship breaks up, your partner may end up with half the property that they have helped fund.
5. What to do about the what-ifs
What if you have a child and stop working? What if you are transferred interstate with your job? What if you break up? It’s not easy having a conversation about seemingly remote future scenarios, but it’s all part of a responsible approach to property purchase with a partner.
Plan for how you would deal with these situations, whether you would need to sell off the home and how proceeds of a sale should be split. Document these what-ifs in a co-ownership legal agreement.
Most importantly, seek expert advice from an experienced mortgage broker who can guide you through this process. Your Yellow Brick Road mortgage broker is happy to help.
**The information on this article contains general information and does not take into account your personal objectives, financial situation or needs. If you require further information don’t hesitate to contact the branch directly.