Sonya: Having ‘the conversation’ with your partner or co-buyer
When it comes to mortgages and purchasing a property, we tend to get so fixated on the purchase price and getting the deposit together, that we often forget about the big picture.
Obviously, they’re both key parts of the process, and if you’ve got the deposit together you’ve probably already nailed the ‘saving’ part of your financials.
But when it comes to discussing those finances, especially when you’re purchasing a property with somebody, you need to get comfortable talking about more than just the initial cost.
You need to get comfortable talking about your finances overall.
Discussing finances can often feel like an uncomfortable discussion to have. Whether you’re a chronic saver, or you like to splurge, confronting your finances head-on can feel a little daunting. But the clarity that comes as a result, makes the discomfort worth it because it lets you know where you’re currently at, and what needs to happen, or be discussed next.
So, before you open those real estate sites and begin your homeownership journey, it’s time to settle in and have that conversation—and here are some of my top tips for navigating the process…
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Create a budget
The word budget can make people recoil with its restrictive connotations. So, to start, let’s reframe it by giving it a name that works for you.
If you prefer to think of expenditure ahead of time, ‘Spending Plan’ may work.
Whereas if you would rather to evaluate as you go, ‘Money Tracker’ may fit you better.
But getting comfortable with a budget, no matter what name you call it, is a great way to see how much disposable income you have available to help fund your new home.
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Share your credit history
It may feel hugely personal, but when you’re going into a long-standing financial commitment with somebody, you must share your history.
Getting a mortgage with someone creates a financial link and so you want to be sure the person you’re being linked to has the same financial values or goals as you do.
It’s also an opportunity to see how the other treats financial commitments. For example, are debts paid off? Do payments get missed? Is there anything you weren’t aware of?
Remember—it’s much better to hear these things directly from each other, rather than your broker. So, ensure you’re entering these discussions with complete honesty!
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Communicate openly
A mortgage broker can help establish your eligibility for a mortgage. But first, those who are getting a property together, must establish they are on the same page.
Getting comfortable discussing finances (and doing so upfront) helps to prevent future resentment, and instead create a partnership.
When you purchase a property with someone, no matter whose bank account the monthly payment comes from, you are both equally responsible for keeping up with the monthly payments.
So, it’s important to discuss each point with the person you’re looking to purchase a property with so that you’re in harmony.
Here’s some points to discuss:
- Who will be responsible for the ongoing financing of the property?
- How will expenses (such as mortgage repayments, insurance policies and utility bills) be divided?
- Who is contributing what to the deposit amount?
- What are the expectations and boundaries you have when it comes to your monthly outgoings?
- Are both parties happy with the above arrangements?
Gemma: Tackling unhelpful emotions around debts
When preparing for a mortgage, your committed expenditure is assessed to calculate if the mortgage is affordable for you.
A huge element of committed expenditure is how much you pay a month on loans and credit cards.
Lenders consider both the monthly payments and the overall debt to decide on their own affordability calculations.
Sonya has already discussed the importance of discussing with anyone you’re buying a property with details of debts and credit.
But, you also need to be honest about this with yourself and your broker from the beginning.
Debt is an emotional trigger for many people
Here’s what I have found to be a common theme amongst clients:
- Denial around the amount of debt.
- Inaccurate knowledge of the balance of their debt
But why?
It seems ‘debt’ can have an emotional trigger and impact on many people. Even those who have excellent credit scores on paper and keep up with the monthly payments, can often feel embarrassed or harbour a sense of shame when it comes to talking about the balance on their credit cards.
It’s very common for these debts to start to feel overwhelming and many people’s natural reaction to this is to conceal it, bury it. One of the hardest emotions to deal with is guilt, even if it’s mislaid guilt.
Well, when it comes to applying for a mortgage, credit reports are key, and the information will be there for consideration whether we are comfortable with that or not.
Shining a light on debt
So, my advice is to shine a light on it for yourself and anyone else you are looking to go into the mortgage with. If you feel shame over the balance, take an opportunity to empower yourself for a reset with it.
The shame or guilt is misplaced, whatever the reason you find yourself in more debt than feels comfortable, forgive yourself quickly, it happens, you’re not alone.
Make a plan to get back in control. Here are some ideas to help you do this:
* Pay a certain amount off and budgeting to clear the rest in a chosen timeframe.
* Increasing the monthly payments to make a bigger dent and a quicker cleared balance.
* Cancelling cards that aren’t used but are tempting.
Whatever it is you decide to do, you cannot do it until you openly look at the reality of your situation.
Debt isn’t always ‘bad’
I have focused here on when debt starts to feel negative. But, to offer some balance, debts such as loans and credit cards are neither a bad nor good thing as far as a mortgage lender is concerned.
Having them is fine, it’s about your affordability with them in place and your conduct around money management that effect the mortgage lenders’ decisions.
For example, if you have credit cards with balances close to their maximum and you only pay the minimum each month, this can look less appealing than if you have some credit on a card and pay the full balance each month, or a large enough amount to show you are in control.
The same applies for inactive cards. It may not have any balance on it now but the potential to borrow up to the card’s limit is there, and highlights a possible risk to the lenders.
Getting help with adverse credit
Adverse credit is when there’s missed payments or late payments on your commitments. These can negatively affect your credit score and can indicate a difficulty in managing your money.
Lenders vary in their appetite for any adverse issues, and a broker can navigate the vast differences in criteria for you if you do find yourself in this position.
The key advice here is to discuss your current debts in a clear and open way from the beginning.
This is the only way to work WITH and around any debts that are in place, and if required forge an empowering plan going forward.
You are in control, but you have to shine a light on it through clear communication.
Gemma Bennett is mortgage broker and Sonya Matharu is senior mortgage broker and they both work for The Mortgage Mum
You can find out more about Sonya and Gemma, their work and how they help people with their mortgage journey here.
Read Gemma and Sonya’s previous article ‘Lenders want to lend’ here.
