The Differences Between Buying a House Before or After the Wedding Day
If you’re one of those people out there considering buying a house before marriage, there are many things you’re likely going to have to plan besides your wedding. Come with us and let’s take a look at what these differences are...
Nowadays, plenty of couples out there are making the decision to purchase a house before they have gotten married. And if you happen to be one of those people who are considering buying a house before tying the knot, there are many things you’ll have to plan for, other than your wedding. Keep on reading and learn more about the possible advantages and disadvantages that you will encounter when buying a home.
How Can Your Marriage Be Affected By Your Mortgage?
Your gender or your civil status will not affect your capacity to qualify, when you apply for a mortgage. The marital status of an applicant is protected by the laws, and financial firms and institutions will need to make credit available to everyone equally, when they’re asking for extension of credit.
Whether you and your partner are married or unmarried, this will not have any effect on your application for a loan. The loan term and approval criteria won’t be any different, no matter what your marital status is. Your chances of getting approved will still depend on your assets, credit, and income.
Now, since we have established that marital status is not important when you apply for a loan, let’s take a moment to talk about the pros and cons of the different marital statuses.
The Pros of Applying as a Single Individual
a. If you have debts and other financial obligations, but they are lesser than your partner’s, then your financial situation will be the one used when calculating the debt-to-income ratio.
b. If your credit score is greater than your partner’s, then it will be the one used when deciding about your credit.
c. If your credit history lacks derogatory information, and your partner’s record does not, then your information will be the one considered.
The Cons of Applying as a Single Individual
a. The income of your partner won’t be included in your debt-to-income ratio, and won’t be used when deciding about your credit.
The Pros of Applying as a Couple
a. If the ratio of your debt-to-income becomes lower when you use you and your partner’s income sources, then it may be used when deciding for your credit.
b. If the joint income you’re using is higher, then there’s a chance that you’ll be approved to get a larger loan.
c. If you and your partner’s credit histories are both clean, then deciding about your credit won’t be affected.
d. If you and your partner’s credit scores are the same, and successfully fulfill the qualifying threshold, then the credit decision won’t be affected if you apply together.
The Cons of Applying as a Couple
a. The lower credit score will be used when deciding about your credit, which may possibly serve to make it more difficult for you to quality, and may even end up costing you more.
Multiple Buyers’ Property Rights
When you own a house, this will be recorded on your deed, and not on your mortgage. This is why, when you get a house with your partner and it’s under only one name, you are still able to decide on how to divide it. You can record titles in different ways, as long as they conform with your local laws.
The title can be recorded in the following ways:
Vesting into a cancellable living trust will allow you, the owner, to have the most command. You will also have the flexibility of having more options. This method of endowing includes the real estate being retained in a cancellable living trust until you are incapitated or have died. The properties will then be allocated to the listed trustees. All of the trustees will receive the designated assets, according to the terms of the trust. The added advantage of living trust is being able to avoid probate delays and costs.
If you’re going to set up a living trust, it will be far less time-consuming and expensive than handling the probate process would be. This process, unlike probate proceedings, will be more private. One of the most significant benefits of a living trust is having full command of your property. Lastly, if the owner is incapacitated, the successor trustee can stand on behalf of the beneficiaries.
Sole ownership is a way of vesting which is used by both single and married individuals. Individuals can use this if their spouse has signed a quitclaim deed that withdraws their claims to the property. With sole ownership, you as the owner will have complete control over your assets. No one will be able to take out loans against the property or sell it. On the deed, the vesting information will be written as “sole and separate property”.
With sole ownership, a will would also allow you the ability to appoint an inheritance. If not, the property will go through probate once you, the owner, have died. One of the disadvantages of sole ownership is that, when things go south, no one else has power over your property. If you die, the property will need to go through probate, so that the heirs can have them. Probate is a public, expensive, and lengthy process.
Joint tenancy, also known as tenancy by the entireties, is a method of vesting used by people who own an asset together. If you go through joint tenancy, you, your partner, and others can hold the title of the asset. This means that you and the others each own an equal amount of shares, and hold the title together. If one of you dies, the title would be given to the surviving co-owner.
The advantage of joint tenancy is in being able to avoid the delays and costs of probate. Joint tenancy will also allow for a tenant to express interest without the knowledge of the co-owner. And this will allow you to transfer the property easier. If the property is transferred with the help of a will, the property will go through probate for the heirs to have them.
If you’re looking for a title vesting with the least restriction, tenancy in common is absolutely going to be the best option for you. With tenancy in common, each of the owners would be able to take out loans or sell their part of the asset without the knowledge of the other owners. This kind of vesting is taken advantage of by co-owners who are not married taking a title. Every co-owner has their own share of the asset, and it may be to other co-owners’ share. The biggest benefit of this way of vesting is that the co-owners are able to assign their interest for inheritance.
With tenancy in common, heirs won’t be unintentionally disinherited because of another co-owner’s actions. The biggest drawback to this, however, is that because of the minimal restriction, there is also minimal stability.
Spouses who obtain property may be able to take title as community property. With this method of vesting, each spouse gets to own half of the asset, and they are able to designate their interest for inheritance. Community property’s right of survivorship is the same with joint tenancy, unless one of the owners has a will which designates inheritance.
The property would be passed on to the spouse who’s still alive, without the need of probate. However, there would also be more risk of the inheritance being passed on to somebody else. There’s also a chance that property ownership would be contested by other parties. If you die, and are still in debt, creditors will then be able to claim the asset. Your property will become part of your estate under the community property method.
Legal and Tax Issues of Buying a Property Before Getting Married
When it comes to owning a house, unmarried couples will be more likely to face further tax obligations, when compared to married couples. The easiest way to decide whether or not you’re ready to buy a property together with your partner is to list down all the pros and cons. Of course, if you’re getting married soon, however, also bear in mind that the house is not one of the assets that you’ll be sharing.
Mortgage Interest Deduction
Married couples or individuals who file separately will be able to enjoy additional tax benefits. This can only happen if their total deductions are more than those of the standard deduction. Due to the changes made in the tax law, the mortgage interest deduction for married couples and singles filing joining has been limited. However, if married couples file separately, their interest deductions are going to be far less.
This may be an issue, if you and your partner are going to purchase a property and split the costs evenly. As an unmarried couple, you will be required to individually file tax returns, if you’re going to deduct the mortgage interest on an asset in a high-cost area. The Canada Revenue Agency would only allow one of the parties involved to claim the deduction; thus, only one of the parties can enjoy the benefits, while the other gets nothing.
Standard vs Itemized Deduction
With the changes made to the tax law, couples who are married will get to enjoy more tax deductions if they itemize their joint return. However, they need to hit certain tax deductions in order to really enjoy benefits from itemizing their tax deductions.
Most married couples don’t have much itemized deductions that let them enjoy the benefits. If they’re not able to approach the threshold, it can be more advantageous for one of them to claim the mortgage when filing their tax return.
On the other hand, unmarried couples will not be able to enjoy joint returns. They would also be unable to receive joint deductions, whichever they choose to do.
Capital Gains on Sale of Property
If you’re single and are planning to sell your property, if it has increased in value, your capital gains will be limited. However, if you file on a joint tax return, you’ll be able to enjoy more deductions. As an unmarried couple, only one of you will be allowed to claim the capital gains deduction, and the other will need to waive their deduction.
In order to meet the required amount of residency, one (or both) of the parties involved would need to have lived in the properties for at least two years.
Property Upkeep and Splitting the Costs
Owning a house includes the need to pay for insurance, property taxes, mortgage payments, and of course, a down payment. It is essential that you plan out what owning a house entails. Doing so will help you to minimize possible problems and evade disagreements over you and your partner’s finances. And this might be only one of the issues - especially if you’re planning other things as well.
Figuring out how you’re going to handle your expenses, as well as how you’ll divide them, can be complicated if you’re not married. If you own assets separately, it’s very important to discuss this with your partner. This is also necessary if you’re planning to buy a property before getting married. Being honest will not only help your relationship, but also your finances. Of course, you don’t need to be in agreement with everything. Being open, though, is essential.
Get Help and Take Necessary Steps
If you’re planning to purchase a house, no matter what your marital status is, it’s definitely best to consult with a lawyer. The lawyer will be able to give you the proper advice on what you need to do. It would also be advisable for you to take time to talk to an escrow agent. The agent will be able to fully explain to you things that the lawyer won’t be able to answer. And finally, it would also be helpful if you and your partner were to open up a joint account. This joint account could then be used to store money, which you can use to pay for expenses!
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