Planning a wedding is one thing. Add a home purchase to that chaos and you have a recipe for stress. If you’ve decide that you can handle both projects and have your heart set on carrying your bride – or being carried by your groom – over the threshold of your own home, you’re not alone. One in four couples between the ages of 18 to 34 searched for and bought a home before they tied the knot, according to a 2013 Coldwell Banker Real Estate survey.
Before you hop in the car and start checking out homes, read on for a few tips.
Your Financial Situation
One of the first decisions you will need to make about the home purchase is about who will be applying for the mortgage – both of you together or just one of you. The decision should be based on your financial situation. Make separate lists containing the following information:
- Your credit score.
- Your annual income.
- Your total debt.
If your credit scores are significantly different, you may want to allow the high-scoring partner to apply for the mortgage. A higher score means a lower interest rate and thus lower house payments. If you decide to include the lower scoring partner on the mortgage, be aware that the low score will most likely dictate the interest rate you get.
If the high-scoring half of the couple has a significantly lower income, however, you’ll need to make a decision on what is more important: a lower interest rate or a higher loan amount.
Ways to Hold Title
Joe and Sarah are engaged and plan on buying a house together before the wedding. Sarah has been employed in a management position with a large firm for six years and holds a 720 credit score. Joe, on the other hand, lived the high life during his bachelor days, moved around a lot, and frequently found himself dodging bill collectors. Although he’s settled down and has held the same job for over a year, his credit score is 560.
The couple, with the help of their lender, decides to have Sarah apply for the mortgage. Not only are their chances of approval higher, but the interest rate will be lower than it would be with Joe applying as a co-borrower.
Joe is disappointed, as he had hoped for this to be a joint venture. This is where the manner of holding title comes into play. Because Sarah is on record as the responsible party for the mortgage payments, she can add Joe’s name to the deed after the deal closes. First, though, they need to make a decision on how they wish to hold title.
Two of the most common ways of holding title are joint tenants and tenants in common. Joint tenants own equal shares of the home. When one of the tenants dies, the other automatically takes control of the deceased’s share, regardless of anything else stipulated in a will. Known as the “right of survivorship,” this method of holding title avoids the probate process.
If one partner in the joint tenancy wants to sell his share of the property, the joint tenancy ends and the new owner becomes a tenant in common, with no rights of survivorship.
Joint tenancy has certain tax consequences for the survivor, so work with an attorney and your financial planner before deciding on this method of holding title.
“Tenants in common” is the most common way for unmarried partners to hold title. Under this method there is no right to inherit the other’s share upon death. Instead, the ownership transfers to those named in the will or living trust. Unlike joint tenants, tenants in common can own unequal shares of the property. For instance, Sarah can own 60 percent and Joe can own 40 percent.
Again, there are legal ramifications of holding title as tenants in common, so consult with your attorney before making a decision.
Adding a name to the title is typically accomplished with a quitclaim deed.
No couple – especially those in the throes of wedding planning – wants to consider that they may not make it to the altar. Broken engagements do happen, though, and it’s important to protect yourselves.
Meet with an attorney and discuss the possible legal pitfalls of a breakup before you get married, including the division of the property and equity. A written agreement addressing what will happen in the event you don’t exchange vows will protect both of you.
Once the home purchase and legal issues are out of the way you can concentrate on those chiming wedding bells and the promise of marital bliss.