Tackle Affordability: Own Home Together

Across California, the median home price has continued to shoot up after summer, setting record high in August and September two months in a roll. It has become more challenging to purchase a home using one single income. Not only married couples plan to buy a home, more couples who are not married are considering owning a home together. According to a Wall Street Journal article and U.S. Census Bureau, the number of unmarried couples who lived together almost tripled in the last twenty years. Among these cohabitants, the number of couples who are 65 and older and do not plan to marry also increased. While couples like to enjoy the benefits of home ownership and more space especially during the quarantine, how to approach one of the biggest purchase in our lives is an important question to ask.

Talking about money, expenses, and financial responsibility can be difficult, even emotional. Yet talking finances, debt and income in particular, with full transparency is crucial when you and your partner consider purchasing a home. During my years of helping buyer clients, I had been in a few situations that undiscovered/undiscussed debt derailed the process of securing a loan, even when we found a home and entered escrow. On the flip side, undiscovered/undiscussed income that can elevate loan qualification became a missed opportunity when buyer couples struggled to find a space to call home. What I always remind my clients is that numbers are just numbers and it is better to know your numbers.

While applying for the mortgage loan, two income can increase your purchase power. However, it is not always ideal to apply for a home loan together. For example, mortgage lender uses the lowest FICO score of the two when considering applicant qualification. If one person's FICO score is lower than the lender's minimum requirement, the loan might not be approved. While combined income is larger than one income, combined debt can affect the debt-income ratio and subsequently affect how much loan amount you can be qualified for. Because of these ins and outs, consult a loan officer beforehand to see who is the best candidate to apply for a loan or both should apply together.

One topic you want to discuss during the purchase process is how you will take the title and ownership. Go to a qualified professional for advice and have an open conversation is the key. A more difficult topic is what happens if you break up. Again, have a discussion on this scenario and consult professional such as a qualified real estate attorney for advice.

Tax benefits are real when you own a home. Principle/interest payment of your mortgage loan and property tax payment is one major tax deductible category. However, how to maximize these benefits look different for unmarried couples. A chat with your accountant and tax planning can't hurt when planning to buy a home together.

Purchasing a home is exciting. It is always fun to look at different homes and let yourself imagine how you will use the space. Yet conversations on not-so-fun topics also need to happen. These conversations sometimes can test your trust and your relationship. However, working together to gain a better understanding of each other's life will bring many rewards, including owning a home together.

P.S.: This articles can also apply to the scenario that several family members purchase a home together.