Before you apply for a home loan with your partner, there are a few discussions that you need to have that go a little beyond what you may know already.
You’ve found someone you want to spend your life with (or a significant chunk of it, at least) – the hard part is over, right? Wrong. You know each other well enough to know whether or not you each blow the budget every month, but you probably don’t know each other’s complete credit history. So, before you buy a property together, there are plenty of discussions you need to have. Here are three of them.
Have they defaulted on any payments?
He or she might be relatively debt free now, but has this always been the case? One bad mark on a credit file, such as a late car payment or a default on a credit card, will change the approach you need to take when applying for finance.
It doesn’t mean you can’t secure finance, but it may mean you need to apply to a specialist lender for an alt-doc loan.
That savings balance, where has it come from?
If your partner has savings towards a deposit, that’s fantastic. But the balance is only one part of the equation that lenders consider.
If he or she has managed to build up those savings over a good period of time, making regular contributions and managing their savings well, lenders will consider this a positive indication of an ability to make repayments regularly.
If, however, the savings are the result of a redundancy payout, a gift from family or backing a good horse, they are still helpful as a deposit, but don’t indicate that ability to make repayments.
Again, this is not the end of the world. You’ll be in a better position than you would without that balance, but may need expert help to put your application in the best light.
If we did get into trouble, how would you want to handle it?
You must plan for every eventuality, even one you think is not likely. Having said that, this discussion isn’t so much about having a solid plan in place for the worst, as seeing how your partner would deal with difficulty.
If one of you lost your job, or you had unexpected bills that seemed overwhelming, would they try to struggle through, not wanting to talk about it with you or with your credit advisor, and potentially default on the loan? Or would they tackle it head on by visiting your advisor or lender with you to make a plan to get through it without defaulting?
Before you start looking for a home to share with the love of your life, an appointment with a LadyBird credit advisor can help you iron out the details and secure the finance that suits both of you.
Wayne, Michael and the LadyBird team