Honey, I Went Bankrupt: Three Big Talks You Need to Have Before Getting a Home Loan With Your Partner
You know your partner like the back of your hand. You’re absolute besties and you know each other inside and out. You’re friends would say that you go together like macaroni and cheese, or strawberries and cream, or pizza and beer… you get the idea. Basically, you know each other exceptionally well, and more than enough to decide to buy a home together.
But what about financially? Sure, you might know that he has a tendency to splurge on extravagant gifts for their toy poodle or blow their monthly income on reckless adventure sports like that shark diving trip they forced you into. You likely know each other well enough to know their spending habits, but how much do you really know about their financial history?
These are the things you will both want to discuss before you decide to take out a home loan together. Buying a property with someone is kind of a big deal, especially when that someone is your beloved. So I’m here to outline just a few of the discussions you will want to have before you jump in and buy that dream home.
How is your partner’s credit history?
Your partner might not necessarily be in any serious amount of debt at this current point in time, but looking back, have they ever been? There are certain problems that could arise from having a bad credit history when applying for a home that you might not even be aware of.
If your partner is guilty of defaulting on their credit card or having a late payment on their personal loan, you’ll need to alter the approach that you both take when applying for a home loan. Now don’t freak out just yet, this doesn’t necessarily mean that you won’t get approval for a loan, it might just mean that you need to find a specialist lender to help you design an application that’s most appropriate to your financial situation.
An MFAA (Mortgage and Finance Association of Australia) approved broker will be able to help you find the right person to meet your needs when it comes to putting together your home loan application for the best chance of getting that sweet, sweet approval.
Where has all their money come from?
Has your partner already managed to accumulate a significant chunk of savings to go towards a deposit? That’s brilliant! Although, how much do you know about the origin of those savings? It might not seem like a big deal, but this is going to matter.
For instance, if your partner’s savings came about by way of consistent and regular payments set aside specifically for savings, and managed successfully over a reasonable amount of time, this is going to make a very good impression. Lenders will consider this kind of financial behaviour to be evidence of your partner’s ability to maintain regular repayments.
That’s the good news. The not so good news is if your partner managed to accrue their savings by way of receiving a huge lump sum, either as a gift from a family member or perhaps a redundancy payout… or maybe by getting a super string of good luck at the casino that night at Johnno’s bachelor party. Now at the end of the day, any money is good money if it can go towards a housing deposit (unless it’s stolen money… stolen money is not good money, people). The problem you’re going to have is that any money acquired in this fashion does not prove in any way that the recipient is capable of making regular payments – even if they are.
But don’t fret! This is still a tremendous position to be in. Already having a significant portion of your savings deposit is a million times better than having no savings at all. You might just need to find yourselves a financial advisor that will help put your application in a positive light.
How does your partner deal with difficult situations?
Last but not least, have you both decided on a contingency plan? In other words, If everything came crumbling down, how would you deal with it? I know that this isn’t the most pleasant thing in the world to have to think about, but it’s essential that you both have a plan for every possible outcome. Especially the bad ones. If we can all agree on one thing here, it’s that life is unpredictable. So it’s always going to be in your best interests to come up with a plan for when life doesn’t quite go your way.
For instance, what if you or your partner sustains an injury and can’t work, what if either of you lose your job, or the power bills go through the roof one year, or if a tree literally goes through your roof?! An unexpected increase in payments can cause serious financial strain and have a significant impact on an individual’s ability to cope. These are situations where you need to know that you and partner will be able to communicate and work through whatever issues you’re facing at that time.
If either of you find yourself in a dire financial situation, you’ll want to make sure that you’re both on the same page when it comes to your home loan repayments. Is your partner likely to shut down and admit defeat, not willing to put in the hard yards or go seek advice from a expert? Or do you think they would be able to pull it together and work things through? Facing your issues head on is going to be your best option in a situation like this. Finding yourselves a financial adviser will make your lives so much easier and make a seemingly overwhelming problem significantly more manageable.
I want to make sure that you and partner are in the absolute best place possible to go all in when applying for a home loan, which is why it’s always best to be prepared for the worst – so no matter what happens, you’re both winners in the end.
Mike Heathcote is the founder of Building Masters Inspections and a veteran builder with decades of experience. Utilising his industry knowledge, Mike and his team of experienced Builders provide an Inspection Service offering expert opinion on the true condition of buildings, including estimated repair costs, helping home buyers find their perfect property, Melbourne wide.