Q&A: Marriage, finances and buying a house

Question: My spouse and I have started talking about the possibility of buying a house. We both agree that we want to own our own home – eventually – but we’re not on the same page when it comes to the practical logistics of achieving the goal. Can you provide us with any guidance in this area?

Answer:

We’re glad you asked. The decision to buy a home is important, but so is the way you and your spouse go about making that decision and putting it into effect. This process can be a barometer by which to measure the health and maturity of your relationship.

As you’re exploring your options, then, take time to listen, to understand one another and to pray together about your goals. Stay willing to grow through the experience. Seek counsel from others – for example, a real estate agent or an older couple who have been down this route before. Take time to discuss your priorities and to talk about the pros and cons of buying a house. Don’t jump into anything on the basis of mere emotion, a desire to impress others or an irresponsible penchant to spend money you don’t really have.

Are you ready to be homeowners?

Whatever you do, remember that purchasing a house is one of the biggest investments you’ll ever make. Here are a few factors to consider in determining your readiness to take this major step:

1. Your ability to pay. In addition to coming up with a down payment – which is essential – you’ll need to figure out if you can afford the monthly mortgage payments. If you don’t have a budget already, you should develop one to see how much money you actually have available to put toward this monthly expense (be sure to include taxes and insurance). You can get a good idea of whether you’re getting in over your head or not by using the following formula: first, divide your fixed debt by your gross income; then turn the result into a percentage by moving the decimal two places to the right. Most lenders want that number to be under 36 per cent, preferably under 30 per cent and as close to 20 per cent as possible (some will allow up to 45 per cent, depending on your credit score).
2. Timing. Though the common wisdom generally asserts that it just doesn’t make sense not to buy a house, there are situations in which renting is actually the wiser choice, even if you’ve already saved up a down payment. If you’re expecting to move soon, if your income is likely to drop in the near future, if one or both of you are still completing your education, or if you don’t have an emergency fund (about three months’ salary), you probably shouldn’t be thinking about buying a house. At other times, however, it’s good to remember that by renting you’re building someone else’s equity and assets – not your own.
3. "Forgotten" costs. The costs of home ownership don’t end with the mortgage payment. Some other expenses to keep in mind include fees associated with loan processing and purchase of the home; upkeep – everything from water heaters to roofs to painting; and property taxes and home owner’s insurance, both of which tend to increase over time.
4. Benefits. On the positive side, you should remember that mortgage interest and real estate taxes are tax deductible. For specifics in this area, consult an accountant or attorney who specializes in this field. Another benefit is the opportunity to participate in government programs that assist first-time home buyers. Then there’s the simple value of ownership to be taken into account – the freedom to control your environment, remodel your house, put nail holes in the walls, or plant a garden without getting permission from a landlord. The two of you will have to decide together how much this is worth to you.

What if you decide you should buy a home but really can’t afford it? In that case, there’s really just one thing to do: begin to develop a financial plan that lets you reduce or even eliminate fixed debt. Freeing up money for a down payment and then building equity in a small home usually is a good long-term plan. Dreams can come true, but they usually require patience, perseverance and time.