On the heels of our first-ever Agent Appreciation month, Inman is leaping into February with our Residential Finance theme month. Join us as we investigate how buying and selling a home is changing, from companies backing consumers in new ways to integrated services that handle the entire transaction.
Purchasing a home is one of the most important financial decisions a person will make, so it’s no surprise that 62 percent of couples argue about budgets (37 percent) and lending choices (25 percent) during their journey to homeownership.
However, Boston-based real estate agent Dana Bull believes couples can reduce stress and avoid arguments with candid conversations and careful planning.
Step 1: Get pre-approved for a mortgage.
Bull said the first step couples, married or unmarried, should make is getting pre-approved for a mortgage loan. Unlike the pre-qualification process, pre-approval requires buyers to provide pay stubs, tax returns, two years of W-2s, bank account statements, and valid forms of information.
“Whether they’re married or not, they’re going into a decision that’s big together, and they go through the same thought process,” she said. “The first logical step people can make is to get pre-approved by a lender. A lot of times, people have no idea what they can get pre-approved for.”
While most of Bull’s clients’ pre-approval budget is higher than they expected, a few receive bad news — their loan amount won’t cover the home they want, or they’re not approved at all.
For couples who find themselves in the latter categories, Bull suggested couples re-examine their finances and create a new strategy to move forward.
“When clients receive disappointing news that they aren’t in a position to buy, from there, they have to come up with a strategy to get themselves in the right position,” Bull told Inman.
“If credit scores are the issue, sometimes the lender can put together a roadmap of what to do to boost their score 10 or 20 points.”
If the issue lies with insufficient income, Bull said couples need to consider switching jobs, negotiating raises, or creating a side hustle to generate greater cash flow. Beyond lackluster credit and insufficient income, student loan debt can be a significant issue, especially for millennial couples.
“I think one of the bigger struggles is the college debt that a lot of people have right now,” she said. “So, sometimes, for younger couples, it may be figuring out if they can move back home and live with their parents for a year or two so they can pay off student loans.”
“They have to strategize on what options are available to them,” she added.
Step 2: Calculate your budget for all housing-related costs.
On the other hand, couples who receive pre-approval have another critical decision to make: determining their actual budget.
Bull said most of the couples she serves have the same dynamic — one partner is a spendthrift who wants to stay well below the loan amount, and one partner is willing to go to the max to get the home and neighborhood they want.
In this case, Bull pushes couples to pump the brakes and create a budget that includes closing costs, utility costs, landscaping, maintenance, insurance, and taxes.
“It becomes a conversation between partners and putting together an actual budget for housing costs,” she explained. “All these sorts of things tally up.”
Step 3: Determine how to split costs.
After creating a budget, Bull said couples must determine how to split costs. For married couples, this tends to be a non-issue, she said, but unmarried couples have a hard time creating an equitable split.
“I have some couples who aren’t married, and it becomes like any other argument where you go out to dinner and try to figure out if you want to split the bill,” Bull said.
In this case, there’s no single solution. However, Bull said unmarried couples where one spouse significantly out earns the other might consider different budget splits (e.g., 60/40, 70/30) and only placing the higher-earning spouse’s name on the deed.
“The other partner has no strings attached and is technically a tenant who rents from their partner,” she explained. “If they ever want to make it more official and they want to give the other partner rights or interest in the property, they can add their name to the deed.”
“But [not adding the name] can help things stay clean,” she added.
Step 4: Create a contingency plan for if the relationship ends.
In addition to removing some of the financial onus from the lower-earning spouse, Bull said having one name on the deed can make navigating a break-up between unmarried couples easier since they don’t have the same legal protections as married couples.
“It’s a tough conversation to have, but before they jump into buying, they need to talk about ‘What if this doesn’t work out?'” she said. “Are they both comfortable selling, especially if there’s a 50/50 interest in the purchase?”
“It’s an entirely different story if only one person’s name is on the deed,” she concluded. “For unmarried couples, it’s often only one person’s name on the deed. They’re often ready to live together, but not buy together.”