Even though buying a new home is a dream for many couples—and we're certain you're eager to start the process—it's still a business transaction and an investment in your future. As such, if you're looking to mortgage your new home, it's important to consider all of the factors of having two signatures on your legally binding documents.
Being fully prepared beforehand will put you both in a positive position moving forward on your new home.
An Important Conversation
As a couple, you are made up of two very individual people, both with unique perspectives, wants, and needs. Before your home buying journey begins, you should have a very frank and open discussion between you about exactly what it is you're looking for. What are your priorities in a home? What are your must-haves versus nice-to-haves?
And very importantly, what is your hard budget? While you're out looking at homes it's very easy to want to stretch beyond your budget, so you should have that conversation early to determine whether or not it's acceptable to both of you to spend more than intended, or if you absolutely have to stick to that predetermined number.
Qualifying with Credit Scores
Before reaching out to lenders, you should both know your credit scores. This score is a significant factor in a lender's decision whether to grant you a mortgage and at what interest rate and terms. If you both have good credit, then applying jointly for a mortgage is ideal. You'll both benefit from maintaining and improving your credit score if you pay your new mortgage on time over time. This can also put you in a stronger standing when it comes time to renew and renegotiate your mortgage.
However, if one of you has less-than-favourable credit, it may be better for the stronger applicant to apply alone. That way, you'll ensure your interest rate and mortgage payment isn't unreasonably high, making it difficult to gain ground on building equity. However, the total mortgage granted may be lower due to a single applicant being considered.
Financial Obligation
Although applying for a joint mortgage means you can afford a higher amount for your purchase, it's also a risk you take for yourselves should anything change in your situation. Obtaining a joint mortgage commits you legally to the responsibility of repayment, regardless of any situation that renders one of you to be unable to make a contribution.
Perhaps one of you loses a job—the other is responsible for covering the mortgage payments or you both risk the possibility of default. It's always best to purchase a home at less than your pre-approved amount so you'll always have wiggle room in the budget should anything occur.
A Joint Mortgage Doesn't Always Mean Joint Ownership
Both your mortgage and your home's deed are two separate documents, and just because you both obtain a mortgage on the home doesn't necessarily mean you both own it. When you make your offer to purchase, ensure both of your names are on the legal documents and are transferred to the property's deed. Unless you both agree this isn't what you want, of course.
No One Wants to Consider this Now...
When you buy a property, the last thing you're thinking about is the possibility you may separate, or one of you will want or need out of the mortgage obligation for whatever reason. Since a mortgage is a legally binding transaction, it isn't as simple as removing a name from the mortgage documents. Your lender will require the remaining party to reapply for the mortgage balance amount on his or her own, and it isn't guaranteed to be approved.
It's not impossible to remove one person from the mortgage contract, but it's definitely a process. If it's something you need to do, you should go into it with a full understanding of your obligations. Be sure to read your mortgage agreement fully before signing on the dotted line.
Our posts on mortgage terms and definitions, Part 1 and Part 2, can help you gain a better understanding beforehand.
Benefits of Going In Together
There are many positive reasons to obtain a joint mortgage. You'll be able to spread the payments across two incomes, qualify for a higher amount to purchase, share the burden of the initial down payment, and share costs to maintain the home over time. You'll also both benefit from building credit and equity, which helps build your financial futures. You'll both experience pride of ownership, making your home a place of comfort for both of you.
A home is the best investment you can make for your future. By educating yourselves on the best way to approach the financial side of your purchase, you can make smart decisions about the mortgage you obtain.
