By Danielle Drummond
Apr 25th, 2016
Buying a Home With Another Person
So you’ve made the decision, and you’re thinking about buying a home with someone else… Before you sign that contract, here are some things you should know before getting started.
1. Getting Started and Prequalified
Before you go to see any properties, its always important to know what you’re in for. Have the both of you talked about your income? Your credit scores? You don’t want any surprises with what you think you can afford. Contact a lender and attorney who have experience in working with your arrangement. Most Realtors will require that you get prequalified by a lender before going on showings. You also what to get prequalified to know what’s realistic for you to be spending before you start searching- it’s like trying on a wedding dress you can’t afford; don’t even do it. Make a list of any debts you have (student loans, car payments, credit card debt) since that will be subtracted from your total income by a lender. Plan to spend less than 30% of your monthly income on total payments (mortgage, assessments, taxes, utilities). Finally before contacting your Realtor, speak to an attorney about a cohabitation agreement to protect both your individual ownership.
2. Prioritizing What You Both Want
Its going to be difficult to find what you want if you’re on two different pages. It happens time and time again, where he wants modern / she wants vintage and nobody’s happy. Find pictures online of architectural styles you can both agree on. Start by making separate wish lists and go through each point one-by-one together to reconcile one list. Your lists should include “must haves” and then “wish list items that aren’t deal breakers” to help your Realtor prioritize what you need vs. what you want. Finally, despite what you’re prequalified to spend, decide how much you really want to spend every month to tell your Realtor.
3. Realize That This is Likely a Starter Home
If you’re both first time buyers, this will likely not be your “dream home” and that you’ll likely only be there for the next 3-5 years. Finances change, you’ll likely be able to afford more in a few years, and life’s priorities will change in that time too: you’ll need more bedrooms, more space, better schools, change of job location, etc. Focus on what you need now and how long you’ll actually live there. If, for now, you can afford a two-bedroom apartment, but you think in a few years you’ll need 3-4, buy what you can afford and plan to move in a few years or at least until its necessary. When this is the case, focus on properties that will appreciate well, so you can afford the next “fancier” place. You’ll also need to have some imagination with inevitable needed upgrades in your budget. Everything won’t be exactly what you want, but small changes don’t have to be costly.
4. Competition In Your Pricepoint
Many home buyers want a loan that under that “Jumbo Loan” limit of $417,000. If you’re putting approximately 10% down (as many do)- that puts you at 417k loan + 10% downpayment = $458k budget…along with everyone else in your situation. If you’re buying in spring/summer, expect the market to ramp up and you’ll often see multiple full price/over ask offers on anything valued right in good locations.
5. Final words of advice
See plenty of places, even if you’re not really interested in them, to learn what you do and don’t want so you’re ready to pull the trigger when you find “the one.” Inventory in Chicago is at a 9-year low, and places on the market sell so quickly so schedule your showings immediately when you see a property you’re interested in. Be educated on market prices in your ideal neighborhoods and what’s affordable so you know a deal when you see one; and know what to offer.