In today’s housing market, choosing to buy a home with your partner makes smart financial sense. Two incomes afford you the opportunity to borrow more and buy a larger property or in a better location. Since you can split the rates and utilities between you, you’ll have more left over every month to pay down the mortgage faster.
It’s no wonder that new analysis from ME Bank found that 62% of all home loan applications are from couples.
However, it’s not to be taken lightly. When you buy a home with your partner, you enter into a serious financial and logistic commitment.
Here are a few things to consider.
1. Are you both employed with good credit?
If you buy a home with your partner, and you have dual incomes, it will be of great benefit. Banks will look on the application more favourably because you earn more combined than a single person. It’s also more secure from their point of view, since it’s unlikely that both of you will lose your jobs at the same time.
However, having one partner with bad credit or who is unemployed may set you back. In this case, applying as a single person might actually work in your favour. Otherwise, the bank will view your partner as a dependent and reduce your serviceability. Learn more about your credit score here.
If you and your partner are both employed and have good credit history, banks are likely to look on your loan application more favourably. Featured here: Matisse, Orana Estate, Clyde North.
2. Are you on the same page financially?
Buying a home together is a huge commitment. The loan will be in joint names, which means that each of you is on the hook for the repayments. If your partner stops paying their share, can you make up the difference?
Before you enter into a sales contract, it’s worth sitting down and having some hard discussions. Ensure that you agree on what sort of property you want, and establish whether you’re willing to make the sacrifices to afford it.
Sit down and look at your current budget. If you’ll need to make spending cuts, they should be discussed beforehand. You don’t want to move in and then discover that each of you thought the other person would be the one cutting back. Agree on who will be contributing what to the mortgage payment and whether you’ll be combining your finances or keeping them separate.
3. Are you prepared to be transparent about your finances?
Applying for a home loan means laying all your financial cards on the table. The lender will want to see details of your income, including any bonuses, foreign income or dividends. They’ll want to know about your assets, your debts and your spending habits.
If you’re buying with a partner, this may feel a little confronting.
Ideally, you’ve shared your income and budget with one another in the planning phase. To avoid mortgage stress, it’s important that you both understand exactly how much you really have to spend. Read more on avoiding mortgage stress here.
Meet together with a mortgage broker to undertake a fact find. The broker will ask both of you for your most recent pay slips, bank statements, and a list of your assets and liabilities. This is generally a shared document, so set aside some time with your partner to go through it together.
Make sure you and your partner are both on the same page and have a realistic understanding of how much you can and want to spend. Transparency is key.
4. Do you know what kind of house you’re looking for?
When you buy a house with a partner, you’re planning for the future. It’s the perfect opportunity to sit down and work out exactly what you want.
If you’re building a new house, you have the luxury of deciding exactly how many bedrooms and what layout suits you the best. Whether you’re building or buying, you should also think about:
5. What type of ownership structure do you want?
The most common way to buy a home with your partner is as joint tenants. This means that both of you own the whole property. In legal terms, you own it ‘jointly and severally’. For tax purposes, you are treated as owning it 50:50, and any profits are divided equally. If one partner dies, the other owner automatically assumes full ownership without the need to transfer the title.
However, the other way to own property is as ‘tenants-in-common’. This allows you to specify the ownership split in a way that reflects your contributions. If one partner is contributing 75% of the deposit, you might choose to buy it as tenants-in-common with ownership split 75:25. This option also allows you to leave your share to someone other than your partner when you die.
There are tax and legal implications for either option. If you plan to buy a home with your partner, it is strongly recommended that you get professional advice about the best ownership structure for you.
When considering your options for ownership structures, be sure to understand the tax and legal implications before you commit to your purchase. Featured here: Matisse, Orana Estate, Clyde North.
If you and your partner want advice about applying for a joint home loan, chat to our in-house construction finance specialists. To find out more about buying the house and land package that suits your budget, call Carlisle Homes on 1300 535 416.