Home Mortgage Alliance Corporation (HMAC)

Buying a home together? It’s more than a mere decision

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Published Date 3/1/2024

Perhaps dating sites should offer their users a list of questions to ask AFTER they find someone who looks like a forever life partner — things that could become irritating over time. Like “Do you like to take long showers after midnight?” Or “How important to you is the method by which a dishwasher is loaded?”

Realtor.com’s Audrey Ference says that while love may be blind, if you and your significant other hope to buy a home together someday, it’s important to go in with your eyes wide open. “That can mean you’ll need to pop some questions about money—right now.”

The problem is that couples often get caught up in looking at houses before they even think about the mortgage. It’s kind of like going to Vegas for a quickie wedding before your first date. True. That discussion about finances with your partner can be uncomfortable. But a lovable sense of humor or sunny smile has no bearing on what a lender looks for — cold, hard numbers. If your finances are in order and your partner hasn’t had his or her come-to-Jesus moment about the importance of a credit score, your home-buying dreams could well be in peril.

Lenders will assess a couple’s ability to purchase jointly, and one person’s credit or income could affect the couple’s ability to qualify for a mortgage at all. So before you sit in front of a computer screen scrolling through houses or making it a weekend pastime to see open houses on weekends, be sure to play the lender and ask some important questions.

Debt. It's no joke. “If you two are serious, odds are you’ve talked about each other’s incomes, but if you’ve never talked about debt, brace for some surprises—the bad kind,” says Ference, who adds that a lot of young people have serious student loan debt. Add auto loans and credit cards and even child support payments to the equation, and you might grasp why it’s important to a lender. Come clean about ALL of it. No secrets here. Because the lender will find it all in a New York minute anyway. Why does it all matter? There is this thing called a debt-to-income ratio used by all lenders. They use it to decide if you can afford to pay back a loan. They’ll add up all of your monthly debts and divide them by your combined monthly income. “To qualify for a mortgage, that number cannot be over 43%, according to the Consumer Financial Protection Bureau, but ideally should be under 36%,” says Ference.

She offers the following example: Your monthly take-home income is $8,000 and you pay $1,000 a month toward debts. That puts your debt-to-income ratio at 12.5%. Add in a mortgage, and that number changes. In this scenario, a monthly mortgage payment of $1,880 would boost this debt-to-income ratio up to the recommended max of 36%.

Wanna know ahead of time so that you avoid that deer-in-the-headlights moment with a loan officer? Use an online home affordability calculator to get a ballpark idea of how much home you can afford.

Report cards. You know them well — right? Well, your adult one is the one that represents how well you’ve paid off past debts: your credit score. This number shows how likely it is that you’ll make your mortgage payments in the future, and since the lender may have plenty of skin in the game, they want to know your habits. Low credit scores can lead to two things: inability to qualify for a loan at all, or offers of higher interest rate loans. Each of you has your own credit score. Nothing about credit scores gets combined, even for. Long-married couples.

If your bank doesn’t offer snapshots of your credit scores each month, get a free copy of your credit report at AnnualCreditReport.com, and pay a small fee for your actual score. A credit score over 700 is ideal: 760 and above is pure gold. The minimum credit score required for a mortgage among most lenders is around 660. Your lender will tell you which aspects of your financial snapshot need fixing before you can qualify or get a better interest rate, so pay strict attention.

Of course, there is also the cold, hard cash. “Ideally, the two of you will be able to put 20% down on a property,” says Ference. “On a $300,000 home, a 20% down payment is $60,000. And don’t forget you’ll need to pay closing costs, which can be anywhere from 2% to 7% of the purchase price of the home.”

But it’s not just a matter of magically handing over the money. The lender cares from whence it came. “Your down payment can come from savings, a gift from a family member, or part of a retirement account that you can cash in (although the latter is not ideal). Getting a personal loan or arranging a note to get the cash just won’t work. Or, you can put down less money. Some mortgages will accept as little as 3% down—but then you’ll be required to pay an extra monthly fee called PMI, or private mortgage insurance. That extra hit on your payment will sting for a while, but it can be removed once you’ve been making faithful payments for a while. Your lender will tell you how to make that happen.

On the true relationship aspects of buying a home together. Who is going to be responsible for how much of the payment? Do you plan to split it 50-50? How much can each of you afford? Now is the time to talk about what is going to be comfortable for each of you going forward. That also leads to whose name is on the title — the legal document proving you own the property. If you’re both contributing to payments, you’ll want both people on the title. Otherwise, depending on your marriage status and what state you live in, one of you may not legally co-own the home.

Okay. So breakin’ up is hard to do, but even that scenario needs to have a plan in place. Lenders recommend putting together a contract specifying what would happen to the equity and who is responsible for the payment in case the relationship ends. If one person contributed more to the down payment or pays more of the monthly mortgage payment, will that person retain a bigger share of the equity, or will you split things equally? If you break up, will the house be sold and the proceeds split, or could one partner buy out the other?

None of this part of buying a home has “dial romance” hanging over it. But it’s important that this transaction, like any other investment, is made with all eyes open.

Realtor, TBWS

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