Before you apply for a home loan with your partner, there are a few topics of discussion you should get out in the open. You may know each other well enough to understand that expensive shoe or coffee habit, but you probably don’t know each other’s complete credit history. So, here are some tips to help you get what you want as a couple.
1. What’s your ideal home together?
Before you do anything else, be realistic about what you can afford and how much debt you want to take on together. Talk about what type of home you’re looking to buy and where you want to live. A home is a large purchase, and you both should be happy with the ultimate decision.
2. Has either of you defaulted on any payments?
Your partner may be relatively debt free, but has this always been the case?
One bad mark on a credit file, such as not paying the mobile bill (when the bill amount is more than the part-time job income) or a default on a credit card, may change the approach you need to take when applying for finance.
It doesn’t mean you won’t be able to secure finance, but it may mean you need to address the credit issues or assess whether applying together will benefit or detract from your application.
If your partner has a bad credit rating, you may be better off leaving them off the home loan application. And this, in turn, may require legal counsel.
3. That savings balance, where has it come from?
If your partner has savings towards a deposit, that’s fantastic (…they’re a keeper!). But the balance is only one part of the equation lenders consider.
If he or she has managed to build up those savings over a period of time, making regular contributions and managing their savings well, lenders will consider this a positive indication of an ability to make repayments regularly.
If, however, the savings are the result of a redundancy payout, a gift from family or backing a good horse, whilst these funds are still helpful as a deposit, they may not assist with the application in the same way as a proven history of saving.
4. Should we get a joint bank account?
Many couples find it easier to have a joint account where the home loan repayments are automatically debited from. This helps with shared responsibility and shared management of your finances. But realistically, not all home loan applications include a joint bank account because everyone's circumstance is unique. Many couples keep separate bank accounts and credit cards.
The key to a smooth home loan application is an ability to show management of outbound costs whilst managing savings at the same time.
5. If we get into trouble with repayments, how would we handle it?
Have a plan for 'what if...?'.
Circumstances change – you or your partner could lose your source of income or you may have a child (or three).
The moral of the story - you don’t necessarily have to account for every possibility, but it’s important to have the discussion so you’re both confident that you’ll handle whatever comes your way.
6. Ask a lawyer.
Some moments around significant life decisions require a legal perspective. And, it may just be better to take on some up-front cost with a lawyer to save money in the longer term.
So, go you two good things. You well informed, money savvy couple, you.