Preparing for a Mortgage Before Getting Married: Budgeting Tips & Legalities

First comes love, then comes mortgage? That’s right, many people (not just millennials) are foregoing weddings and marriage and are instead jumping into down payments and home loans. Either way, you’re looking at a huge commitment. What’s right for you? Only you can answer that. But here are a couple of legal implications to consider before signing a mortgage to cohabit with your significant other or BFF.

Defining your title

You may not be thinking about becoming or adding a Mrs. in your relationship, but you do need to consider how to handle the property title. Unmarried couples have more options than you might think. Though, the reality is the law still effectively treats the couple as separate individuals with no rights or responsibilities if the relationship ends. So, be sure to research what makes sense for you: sole ownership, tenants in common, or joint tenants. Don’t be afraid to consult a real estate attorney.

Considering credit histories

Time to dig deep and get personal. In order for you both to be approved for a home loan, you’ll need your credit checked individually. Your credit is going to determine the amount of loan you qualify for and at what interest rate. So any irresponsible spending from the past could come back to haunt you. Be upfront with one another, and as importantly, be upfront with your mortgage lender. They’ll be able to guide you through the best mortgage approach if one of your credits is not the best. For example, maybe it’s only having one person apply, or even waiting a few months so you can do credit repair.

Committing to finances

Attom Data Solutions reports that on average, nearly 1 in 4 mortgages in the second quarter involved co-borrowers who were not spouses, compared with less than 1 in 5 as recently as 2015. Co-borrowers can be the bank of Mom and Dad co-signing to help a child qualify for a mortgage. Or it can be two (or more) unrelated people going in together on a home. Given the option of co-borrowing with a non-spouse, it’s extremely important to plan for worst-case scenarios...just in case. This ensures you’re covered when it comes to costs and what happens next.

There are many ways to divide up costs. The challenge is often coming to an agreement on what to do: split costs down the middle, have one person make the down payment while the other takes care of closing costs, etc. The further you get into the mortgage process — and especially homeownership —it’s important to keep track of who paid for what, ultimately creating a home prenup. Regardless of what your relationship is like now, things can change over time. Consider consulting with an attorney to help draft written agreements for both parties to sign. Yes, plural and The Mortgage Reports explains what they are and why they’re needed.

Deciding on a mortgage

By this point, you've figured out who will pay for what and sought legal advice regarding the property title. Now it's time to see what mortgage makes the most sense for the two of you. Seeing as no two home loans are the same, this may not be easy.

We suggest reaching out to a lender as soon as possible. This person will look at a number of factors, such as credit score and employment history, before telling you how much home you can afford. 

So which mortgage programs are worth exploring? Well, if either of you is a member of the military, you could qualify for a no-money-down VA loan. FHA loans, on the other hand, come with flexible credit requirements and are popular among first-time home buyers.

Don't make the mistake of choosing just any mortgage. Follow the guidance of your lender and make sure the loan you decide on is one that you and your co-borrower can manage.

Budgeting tips to follow

1. Cut back on unnecessary expenses — like coffee, drinks, and entertainment. The keyword being "cut back." There’s no need to eliminate the fun altogether, but be mindful of how often you eat out or go out.

2. Shop around for the best deals — whether it’s furniture, internet service, your vehicle. Doing this can help save larger amounts of money that can be put toward a down payment or closing costs.

3. Create a separate savings account. This is extremely helpful because it will keep you from accessing the available dollars, but it also allows for a spot where your family can gift you down payment money. Because gifted money needs to be sourced, it’s an easy way to keep track of who it’s from and what it’s for.

4. Look into assistance programs. As we’ve said in quite a few articles prior to this — it’s always in your best interest to look into state and government aid programs. Most available assistance money is specifically for first-time home buyers, which is likely perfect for your situation.

As importantly, enjoy the experience! And don’t be afraid to take your time. This is one of the largest investments of your life, so don’t rush into it too quickly and risk making mistakes. Remember, it can be uncomfortable to prepare for the worst — so, be certain to celebrate your new home purchase and enjoy making it your own.