Should You Commit...To Buying a Home Before Getting Married?
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A very common question we get from women is whether or not it is "ok" to buy a house with your honey before getting married. Our short answer: Proceed With Caution. Buying a house is a major financial step. It is not one to be undertaken lightly. Many people falsely believe that renting is "throwing money down the drain." The truth is, in the early years of paying off a mortgage, even with the mortgage interest tax deduction, the vast majority of your monthly mortgage payments are going to interest, not to building equity in your home.
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Now, asking whether it's "ok" to buy a house before getting married is a lot like asking if it's "ok" to have children together before getting married. It's a loaded question that people have all sorts of religious, spiritual and logistical feelings about. Our goal with this post is to give you a few financial rules of thumb to think about as well. We believe that no one (married, co-habitating, or single) should buy a house without thinking through the following three points. If you don't, it's like swimming in the financial ocean when the lifeguard has place the "danger level high" flag out.
- First, ask yourself, how long will you live in your home? If the answer is fewer than five years, we strongly urge you to consider renting. Why? Well, up until a couple years ago, it seemed like housing prices could go nowhere but up. However, that’s not the case. The last thing you want to do is buy a home today and be forced to sell in a couple years at a lower price. This puts you on the hook for the price difference of your home and the cost of buying and selling your house. Those closing costs and real estate agent fees are not chump change, either. They can reach almost 10 percent of your purchase price.
- How much house can you comfortably afford? Our recommendation is to keep your total housing expense to 25 percent or less of your gross income. If you live in an area with higher housing costs and where you take public transportation instead of driving your own car, that number can creep up to 30 percent. The key point is that if your combined home and car expenses are above 35 percent, after you consider taxes and other living expenses, it becomes really hard to save money for your all important emergency fund, big ticket items, and retirement.
- Finally, when you do buy your home, strongly consider a fixed rate mortgage such as a 15- or 30-year, fixed-rate mortgage. When you hear about the financial trouble that a lot of folks get into, it’s largely related to “fancier” mortgages, such as adjustable rate and interest only mortgages. We suggest that you only consider an adjustable rate mortgage if you know with certainty that you are going to move before that rate adjusts. Finally, here’s some tough love: If you can only afford your home with a fancy-schmancy convoluted alphabet soup mortgage, you really can’t afford it and your financial life will likely be better without it.
Armed with this information you are in a better position to say "I do" or "I don't" to buying a house with your honey.