Couple Finances - Should We Buy Or Rent?
Last updated on : June 17 2021
Budgeting For Couples
When moving in with your significant other, you'll get many opinions on structuring your finances.
There is plenty of debate about whether to keep your finances separate or combine them somehow, whether to buy or rent and how to budget for expenses, plus more.
In this article, we tackle whether it might be better to buy or rent and how you might structure your couple's finances around this decision.
#1: Buying vs. Renting
If you're thinking about moving into a new place together, then it's essential to weigh the advantages and disadvantages of renting or buying with your circumstances and needs in mind.
Here's a list of pros and cons to guide your decision when taking this big step:
Often, a side-by-side comparison of rent and mortgage payments will prove rent is a cheaper option month-to-month.
When you consider splitting the cost between two people, renting can be a cost-effective option for those who aren't ready to dive into a significant investment like a mortgage.
Try out a renting vs. buying calculator to factor in the things that will affect the price you'll pay.
On the plus side, when you lease, you aren't committed to anything long term. You typically sign a lease for six months to one-year periods or agreed upon on a month-to-month basis.
With a vastly shorter obligation than a mortgage, you're able to be more flexible with where you want to live or work. If you both decide you don't like the property, you can easily make a lifestyle change once you've fulfilled your rental agreement.
Another benefit to renting is that you aren't responsible for the care of the property.
When you rent, your landlord's responsibilities include making any significant repairs to the place– they will be accountable for any repairs related to heating, plumbing, roofing, or electrical problems.
Though, you can still be on the hook for minor cosmetic fixes and touch-ups.
However, with renting, because your landlord owns your rental apartment, you can't customize it as you'd like or complete any home projects that would alter the property.
Buying a home has many benefits, both financial and personal.
If you decide that your next property move is long-term, then buying may be the best option.
A mortgage is an investment in which you can earn some of your money back once you build equity or make a sufficient amount of payments. If you plan to live there long term, this will most likely happen.
So although it may seem like a big financial spend initially, buying a property, in many cases, proves to be worthwhile down the line.
Instead of putting your money toward rent each month, you are putting your money toward something you will someday own and can hopefully make money off of if you choose to sell in the future.
Also, with a house of your own, you can personalize your space and make the home of your dreams with more extensive remodels and renovations.
In this case, taking down walls for an open concept or adding a home office is well within your reach. With everyone working from home these days, a benefit like this may be another practical reason to look into purchasing a home of your own.
The downside of buying is that it requires a long term commitment to a single property. This commitment makes it harder to up and move should circumstances change or the value of your property falls.
#2: Understanding Your Finances As A Couple
Once you've decided on the type of place you want to live in, the next step is to determine how much you can afford for a house versus what you may be willing to pay in rent.
Discussing finances with your significant other can seem daunting at first. Still, it can create a continually healthy conversation in your relationship for years to come if you address it properly.
Whether you want to rent or buy, there are a few financial factors that you may need to know for both living scenarios.
Both home loan lenders and landlords will have a few basic requirements they expect you to have prepared before applying for an apartment or a loan. These requirements may include questions like:
● What is your credit score?
● What is your annual salary?
● How much do you have in savings?
A. Your Credit Score
Discussing credit scores can give you an excellent place to start when it comes to bringing up finances with your partner. First, ask them if they even know what their credit score is.
Knowing your credit score will help you determine if purchasing a home is even within your means right now.
You impact your credit score by many factors, including the number and type of loans you currently have, your credit card usage, and if you pay back your loans on time.
Some lenders will approve borrowers with a credit score as low as 580, which is on the lower end of things.
However, the higher your credit score, the better, so even if you have a score of 580, it may be worth waiting a bit to grow your score, which will lead to a better mortgage rate in the long run.
When it comes to renting, landlords may want to understand your credit score through a credit check to learn more about a potential tenant's payment history.
Typically, they'll want to know this information for one reason: will you be able to pay your rent on time?
As mentioned above, a higher credit score can indicate many things, one of those being if you pay your bills on time. Although it may not be as big of a deciding factor as it is when purchasing a home, it can still make an impact depending on your future landlord.
Therefore, whether you want to rent or buy, discussing your credit scores together will be a great place to start in this financial discussion and decision making.
B. Your Annual Income
Discussing your annual income with your significant other can feel like one of the more stressful financial factors to address.
When it comes to your income and your partner's, it's easy to feel the pressure of wanting to make the same or as much as them. Which can bring unexpected stress or anxiety, but that doesn't have to be the case.
Regardless of who makes more right now, it is subject to change, and it's essential to encourage their successes rather than being envious of their income.
If you plan to be together for the long haul, earning the most between the two of you is the prerogative, and working as a team will help you achieve the best outcome in any rent or buy decision
When purchasing a home, lenders will need to know your salary to determine how big of a loan you can collectively afford.
Similarly, with renting, landlords utilize your income information to determine if you seem like a couple who could afford rent on a monthly and annual basis.
C. Your Savings
Similar to discussing income, savings may be another sensitive subject you're not sure how to approach.
When it comes to talking about savings, don't expect your partner to be willing to go all-in on utilizing this money for a home or moving expenses.
It's important to respect each other's financial goals that you or your partner may have planned before you even met. Instead of assuming savings will go toward living expenses, discuss your ideal way to utilize your savings.
Maybe 10% goes to a home, while the rest you save for retirement or an emergency fund.
Putting your expectations and plans out on the table will help create an open dialogue, which is vital when establishing a healthy relationship.
That said, lenders will ask about your savings account and inquire into how many accounts you have and how much money is in each.
Lenders do not necessarily expect that you use your savings to put down on a home. Instead, they like to know that you have money to fall back on if you were to lose your job or face some unexpected financial hardship.
Some landlords will want to know this information as well and utilize it in the same way. For example, if you were to lose your job, would you still have enough money in your account to pay three months' rent?
In the end, if you hope to be with your partner long term, finances will come up at some point. Getting ahead of it by discussing it now will help to ensure you are both with similar financial values and long term goals.
#3: Next Steps
Before making the giant leap of moving in together, there are a few things you need to discuss. For example, are you going to rent, or are you ready to commit to buying a home together?
Once you've decided, you'll also have to discuss how you plan to afford your new living arrangements. When you have this figured out, you'll be able to move on to the exciting step of finding a new place and moving in together.
While having these discussions, you're bound to disagree or have to make compromises, but that's part of the process that comes with learning to live and grow together.
Finally, it's always best to discuss your finances with a professional financial advisor. This article does not constitute financial advice but rather should open the doors to a discussion between you and your partner and a professional advisor should the need arise.
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Editor: Charles Fitzgerald