Buying a Home Before Marriage? Here's What To Consider.

Buying a home together before marriage is a significant step for couples. Other couples elect to buy a home together and never plan to marry, but their relationship is a lifetime partnership nonetheless.

Irrespective of your marital relationship, many financial implications and responsibilities associated with home ownership remain the same. 

Click here to skip ahead if you're only interested in this post and learn the considerations of purchasing a home if you are unmarried. 

Can You Afford the Home? 

Overborrowing to purchase a home is a single mistake that leads to compounding pain month after month. A good rule of thumb is to keep fixed costs low to maintain the space in your budget to deal with life's uncertainties.

The home purchase commitment includes the monthly payment, insurance, utilities, maintenance, and repairs. All of these costs fall under housing expenses.

Families with housing costs exceeding 30% of their income may struggle to pay for other necessities such as food, clothing, transportation, medical care, etc. And those paying 50% or more are considered severely cost-burdened.

How to Calculate Your Housing Expense Affordability

There are a number of formulas you can use, some of which the lender will use, to determine how much you can afford. Please keep in mind that the equations calculate top-end affordability. The lower your fixed costs, the higher your chances of managing life's unpredictable expenses.

Housing Ratio Equation

Monthly Housing Expense ÷ Monthly Gross Income = Housing Ratio

Many experts suggest keeping your monthly housing expense at 28% or less of your gross monthly income.

Example 1: Jennifer's mortgage is $900 monthly, and her income is $3,600 monthly.

$900 ÷ $3,600 = .25 or 25%; an affordable housing option because it is below 28%.

Example 2: John's mortgage is $970 monthly, and his income is $2,700 monthly.

$970 ÷ $2,700 = .36 or 36%; housing cost-burdened; not an affordable housing option because it is above 28%.

Example 3: Hope's mortgage is $1,500 monthly, and her income is $3,000 per month.

$1,500 ÷ $3,000 = .50 or 50%; severely house cost-burdened; not an affordable housing option because it is well above 28%.

Lender Pre-Approval

Lenders use ratios to qualify potential borrowers in the pre-approval process. They have two rules of thumb to estimate the maximum affordability of housing expenses for a mortgage loan applicant: the front-end ratio and the back-end ratio.

The current maximum basic housing affordability ratio is 31/43. 

• No more than 31% of a person's monthly income should be committed to their total housing payment.

• No more than 43% of their monthly income should be committed to their total debt payments (e.g., auto loan, mortgage, student loan).

Watch out: Pay periods vary, so be sure you have correctly calculated your monthly gross income.  

The Front-End Ratio

The front-end ratio calculates how much of an individual's gross monthly income can be obligated toward their maximum house payment.

Multiply your monthly income by the qualifying front-end ratio to calculate the maximum house payment allowed.

The equation to calculate the maximum house payment:

Monthly Gross Income x Qualifying Front-End Ratio = Maximum House Payment

Example: Sam is applying for a government-insured FHA loan with a qualifying ratio of 31/43.

Sam’s income is $3200 per month; multiply $3200 X .31 (the 31% front-end ratio) to get $992. 

Samuel could qualify for a maximum house payment of $992.

The Back-End Ratio

The back-end ratio calculates how much of a person's gross monthly income can be used for debt payments, including the home mortgage. 

Multiply the monthly income by the qualifying back-end ratio to calculate the total monthly debt payments allowed.

The equation to calculate the total amount of monthly debt payments allowed:

Monthly Gross Income x Qualifying Back-End Ratio = Maximum Debt Payment

Example: Samuel is applying for a government-insured FHA loan with a qualifying ratio of 31/43.

Sam’s income is $3200 per month; multiply $3200 X .43 (the 43% back-end ratio) to get $1376. 

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Related: When to Rent or Buy a House

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Considerations Exclusive to the Unmarried

According to the Consumer Financial Protection Bureau, a creditor or loan originator may not treat married joint applicants differently from unmarried joint applicants based on the existence, absence, or likelihood of a marital relationship.

However, there should be additional considerations for couples to discuss.

Legal Ownership

Determine how the property will be titled. Common methods include "Joint Tenancy with Right of Survivorship" (both own the property equally and inherit the other’s share upon death) and "Tenancy in Common" (each owns a specified share, which can be passed on to other heirs).

Financing

Review both partners' credit scores as they will impact the mortgage terms and rates. If both of your names are on the loan, both of your credit scores will be considered. It’s not uncommon for the lender to use the lower of the two scores to determine the costs of financing. 

Decide how the mortgage payments, down payment, and closing costs will be divided. Consider seeking the advice of an attorney if you’re unclear about the implications of unequal contributions. 

Future Plans

Be clear about long-term goals and expectations. Are you both planning to stay in the area long-term? What happens to the property if one person needs to move for a job? These are tough questions for married couples and could be even tougher for those who are not.

Exit Strategy

Discuss and document what happens to the property if the relationship ends. Often referred to as cohabitation agreements, documentation should outline how the property will be divided between you in case of future breakup.

Financial Transparency

Have open discussions about each person's finances, including debts, savings, and financial obligations. 

Decide how each partner will contribute to the total cost of home ownership, including the down payment, closing costs, the monthly mortgage payments, and utilities.

This transparency helps ensure that both partners are comfortable with the financial commitment.

Legal Advice

It's wise to consult with a real estate attorney who can help an unmarried couple navigate the complexities of home buying and ensure that both parties' interests are protected.

Approaching the home-buying process with thorough planning and open communication can help couples make informed decisions that align with their individual and joint goals.

Support for Your Future

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I'm the only Accredited Financial Counselor® and Fair Play Facilitator®, empowering high-achieving couples with systems to manage money and the home as a team — drawn from decades of national leadership and lived experience.

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