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Become a savvy home-buying duo.

Are you and your significant other gearing up to be first-time home buyers? If so, you’re not alone. A 2013 study from Coldwell Banker concluded that a quarter of married millennials (ages 18–34) are buying their first home together before tying the knot, and more than two-thirds (68 percent) of married Americans purchase their first home with their spouse.

Buying a home with two incomes could potentially help you afford a more expensive property and make paying your monthly mortgage easier. But before you go out hunting for your dream home, it’s important to take the following steps in order to thoroughly understand each of your finances and how they’ll impact the home-buying decision:

  1. Agree on ownership: By law, married couples are considered equal owners of any property they buy jointly, but unmarried couples do not have the same legal protection, according to the American Bar Association. It is very important to discuss and agree how you want to take ownership of a home. Your options include:  
    • One of you solely holds the title.
    • You both hold the title either as joint tenants (equal ownership) or as tenants in common (with assigned ownership percentages based on how much each contributes). 
         

    Nolo.com provides the pros and cons of each type of ownership. You may also consider discussing this issue with a lawyer, as cohabitation rights can vary by state, and you want to be prepared for any contingency down the road.

  2. Check your credit score: Do you know your credit score? The higher your score, the more likely that a lender will approve your home loan at a favorable interest rate. You and your partner can obtain individual credit reports at no cost every 12 months from the big three national credit reporting companies — Equifax, Experian and TransUnion — at annualcreditreport.com, as well as for free from sites like CreditKarma.com. Based on your scores, note the following:
    • If you and your spouse each have a good credit score, it may make it easier to qualify for a joint loan together, because you’ll be able to list your combined income on an application.
    • If one of you has a less-than-stellar credit score or hefty debt-to-income ratio, the spouse with the better rating can apply alone for the loan, according to Realtor.com. Just remember that the loan amount may likely be less, since it will be based on just one income.
    • If you’re not married, some lenders may want each of you to qualify before approving a joint loan, and while it may be possible to get approved with just one partner’s income, just remember that the person who signed the loan would be responsible for paying it off.
       
  3. Budget for now and later: Your monthly mortgage payment may be more than you’re paying now for your rent, plus you’ll need to plan for property taxes and possibly higher maintenance and utility costs. To figure out what you can spend each month, determine what your current expenses are compared to your combined income. Freddie Mac’s monthly budget worksheet can help you clarify where your money is currently going. Then use BMO Harris’ estimated payment calculator to determine how much money you want to put down. You can then factor in these 8 other expenses you’ll incur as a homebuyer.
     
    Related: Video series: All about your credit score
     
  4. Build up your joint reserves: As you budget for homeownership, you may find that you need to save for a down payment or put aside more to cover some costs. Try to figure out ways to trim some of your expenses from your current budget to add to your savings. Business Insider recommends having at least $10,000 to cover any costs that arise in the first year after you buy your home.
     
  5. Get preapproved: It’s smart to take one last step before you look at homes: Get preapproved for a loan by a lender. This is different from getting prequalified, which is a lender’s estimate of how much you should be able to borrow but doesn’t guarantee you the loan, according to the Consumer Financial Protection Bureau. Preapproval typically means the lender is ready to issue you a loan, based on documentation you provide, and is a much more concrete indication of the amount you’ll be able to spend on a new home and how much you can borrow.

 
According to U.S. News & World Report, some real estate agents won’t even take you to see homes if you aren’t preapproved. Ideally, the New York Times recommends getting a lender preapproval letter within 30 to 60 days of your expected purchase date because some expire in 90 days.

For additional home-buying resources, check out the Consumer Financial Protection Bureau website.

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