Homebuying partners often have disparate income levels, debts, and credit histories, not to mention different philosophies when it comes to spending and saving. To successfully navigate the homebuying process with a partner, you need to do a lot of communicating and compromising—even before you start talking to real estate agents. Take Steffa Mantilla, founder of the personal finance website Money Tamer. She and her husband got married right out of college and saved up for seven years to purchase a home. At the time, he was earning six figures compared to Steffa’s $30,000-per-year job as a zookeeper. “Initially, we wanted a two-story, three-bedroom house in Houston,” said Mantilla in an email to The Balance. “We quickly found out that was way too expensive for us,” so they reset their expectations and started looking at smaller homes outside the city. If you’re thinking about buying a home with a partner whose income is drastically different than yours, it’s important to think about how that might affect your purchasing decisions. Here are some factors to consider as you begin your homebuying journey together.
Conversations To Have Before Deciding To Buy
The first steps may well be the most important. “When you have different incomes, it’s important to [make sure you meet] basic needs, then compromise, understand, and negotiate for best interests,” said George M. Blount, a financial therapist and behavioral economist at nBalance Financial Services. You can’t only focus on the financial side—the emotional process is crucial, since you’re not only purchasing a long-term investment, but a home. As you discuss the questions below, think about how your incomes might play into your desires and opinions. Does the difference in your incomes affect the decisions you’ll make together? If one of you contributes more money, do they expect to have more input or influence? It’s essential to uncover the expectations you’re each bringing to the table as early as possible.
How Much Do You Want To Spend?
Before you start scanning listings, it’s important to get on the same page about your budget. “Too many people buy at the top of their budget,” said Kevin Kurland, a broker at real estate brokerage Home by Choice. “Buy something that doesn’t leave you house-poor and doesn’t drain liquidity as you make comfortable payments.” The Mantillas followed this strategy to the letter. “Even though the lender said we could afford a huge mortgage, we decided to look at houses that were around two times my husband’s salary,” said Mantilla. She planned to change careers in the near future, so her income was uncertain. The couple also planned to have kids, which meant either paying for child care or living on a single income so Mantilla could stay home. With their budget in mind, the Mantillas ended up finding a neighborhood they loved outside of Houston and purchased one of the smallest houses they found there. In fact, their mortgage wound up costing less than rent at their previous apartment. The decision allowed Mantilla to take some time off to be a stay-at-home mom and eventually to launch her digital business. While “buy within your means” is good advice for most homebuyers, it’s particularly important for couples with disparate incomes. If the higher-earning partner loses their job or can’t work for some reason, the couple may not be able to handle the bills on the lower-earning partner’s income. Spending more than one partner is completely comfortable with could also add stress to the relationship; the lower earner might feel they need to sacrifice sleep or free time to earn their portion of the expenses. Other potential ways to set your budget might include relying on just the higher-earning partner’s income for home-related expenses and dedicating the other person’s income toward other shared goals. That’s the approach Danielle Quales and her husband took when they bought their first home in Cincinnati, Ohio. At the time, she was earning around $100,000 as a self-employed marketer, while he was in school studying nursing. Today, Quales told The Balance in an email, she has tripled her earnings and continues to cover all the house-related bills. Her husband now works part-time as a registered nurse and saves all of his income to cover vacations and other extras. Together, they’re also saving to purchase land and build a new home within the next five years.
Which Neighborhood or House Type Do You Want?
Once you have an idea of your budget, consider where you each see yourselves living. Again, this is an important step for all homebuyers, but when you have disparate incomes, it’s particularly important to consider your individual perspectives so neither partner’s needs automatically take precedence. Questions to consider include:
Do you feel safe in the neighborhood? Is there convenient access to your preferred transportation, such as bus routes or bike lanes? Do you feel a sense of belonging in the community? Does it have amenities that are important to you, such as gyms, coffee shops, or parks? Are you looking for a starter home or a forever home?
“What one person considers safe, another may consider extravagant,” Blount said. Alternatively, one partner may be more willing to sacrifice access to amenities or endure a longer commute than the other. It’s crucial to get on the same page so you both feel good about your decisions. This conversation should also include discussing the type of home you plan to buy, as well as its features. If you’re planning to buy a fixer-upper, who will do the fixing, and how much time and money does each partner want to spend on fixes? Are you aligned in terms of your must-haves and dealbreakers? For the Mantillas, this conversation took time. They ultimately decided that buying a smaller home made the most financial sense for them, as long as it had three bedrooms. “We figured that nothing is forever and we could upgrade our home in the future if we decided [it] was too small,” said Mantilla.
Who Will Be on the Mortgage and Title?
When you’re ready to speak with a lender, experts emphasize the importance of being open about your situation. Having vastly different incomes could affect how you qualify for a mortgage based on the lender’s underwriting guidelines, said David Reischer, a real estate attorney and CEO of LegalAdvice.com. “A qualified professional should be an expert at knowing the loan product and placement of an application from borrowers with disparate incomes, particularly if any of your income is variable or unpredictable, such as sales commissions,” Reischer said. Your mortgage documents who is responsible for financial payments, while the title and deed specify the home’s legal ownership structure. Depending on your lender, state, and circumstances, you could choose to put one or both partners on the mortgage, and one or both partners on the title and deed. If only one person takes on the mortgage and responsibility, it’s possible to add someone to the deed after closing the deal. If you’re considering only putting one partner’s name on the mortgage or title, the Consumer Financial Protection Bureau (CFPB) recommends considering these questions:
Will the non-owning partner contribute to the mortgage payments? If so, how much?Could the owning partner handle the mortgage payments on their own, at least for a few months?What will happen if you break up? Will the owner need to pay back any mortgage contributions from the non-owning partner?If the value of the house increases, will the non-owning partner receive any share of that appreciation?
As you can see, this discussion gets complicated quickly. Because property laws vary widely from state to state, it’s a good idea to discuss your legal ownership options with a local property lawyer, as these decisions can carry extremely serious financial, tax, and legal risks for both parties.
Could You Afford This If Something Went Wrong?
Experts agreed that it’s important to discuss potential challenges upfront. For example, if the higher-earning partner loses their job or wants to change careers, what would you do? Discuss each partner’s job and income security, as well as what kinds of income you’ll rely on for homeownership expenses, such as salaries, commissions, dividends, or bonuses. Some types of income, such as bonuses, may not always arrive as planned or in the amount you expected, Kurland said. You should also think ahead to future expenses when considering this question. For example, the Mantillas planned to have kids soon after buying their home, and in their area, “child care costs almost as much as a mortgage,” said Mantilla. That made it essential to factor the potential cost into their budget to make sure they’d be able to cover the mortgage in addition to other bills.
How To Decide Who Will Pay What
Once you’re on the same page about the essential points above, it’s time to talk about how you’ll actually pay for things like the down payment, mortgage payments, and property taxes.
Should You Split Expenses Based on Income?
The experts we spoke with emphasized that when you’re combining your income into a long-term investment that can be expensive to unwind, it may be more helpful to think about “our” money versus “your money and my money”—even if that’s not how you handle the rest of your finances as a couple. Scott has seen income disparity up close in her financial coaching work. She recently spoke with a couple who were thinking about dividing their homeownership expenses based on their incomes: One spouse, who worked full time and earned more money, would cover 75% of expenses, while the other, who was in graduate school, would pay 25%. But after working with Scott, they reconsidered their plan. “I don’t think splitting up homeownership by percentage [of household income] contributes to happiness,” Scott said, “I think it works way better to put all money earned in one pot and pay expenses out of that pot.” Dividing your expenses based on the ratio of your incomes could mean overlooking other important factors or making assumptions about what each of you can afford, she explained. For example, the higher-earning partner might also need to make large student loan payments each month, which could affect the amount of cash they’ll have available to commit to homeownership. When Donna LaBella and her boyfriend, Stu, decided to purchase a home together in New Jersey, they considered it a team effort rather than fixating on percentages or dollar amounts. LaBella put up the down payment since she had cash reserves from an inheritance. The couple opened a joint account to handle their home expenses, and kept the rest of their personal bills and debts separate. For the first few years, LaBella was the higher earner and paid a larger share of the homeownership expenses, she told The Balance in an email. But a couple of years later, she ended up out of work for a while and her boyfriend picked up the slack. Today, their incomes are more closely aligned and they contribute even amounts. Meanwhile, the Mantillas continue to rely on their initial strategy, but with a twist. “We still make our monthly budget off of my husband’s income alone,” Mantilla explained. However, she continued, “Any income I earn goes directly toward paying down our mortgage principal. This helps prevent lifestyle creep while also getting us out of debt.”
How Do You Decide What Feels Fair?
“Not every relationship splits mortgage obligations 50/50 to the penny. Relationships are all different,” Reischer said. Sometimes, the lower-income partner contributes to the household in other ways, such as caring for children or other family members. A prenuptial agreement can formalize these contributions, he noted, “but otherwise, nobody memorializes this type of stuff in writing. It would be too expensive to hire a lawyer for this type of wrangling and negotiating.” You’ll need to talk it out until you come to an agreement that feels fair for both of you. One factor that helped “even things up” between LaBella and her boyfriend—considering she put up the entire 35% down payment for their home—was the fact that he was so handy. “He continues to do work on the house regularly to this day, and often pays for the supplies out of his own pocket,” LaBella said. “His work has added so much value to the home.” In the Quales household, although Danielle’s husband’s income is negligible compared to hers, he makes other important contributions to the family’s finances. “We have very good health insurance coverage through his job, so that’s a huge expense we don’t have to cover,” Quales said. And when they had a child, his part-time schedule meant not having to pay for child care.
Document Everything
Whatever you decide, it’s important to document your decisions, agreements, and contributions in writing. For example, document how much you each contributed to the down payment—even if one of you only paid a small amount—since it affects your equity. For example, if one partner “lends” the other some money for the down payment or closing costs, Reischer suggested getting a lawyer to write a legally binding promissory note. Couples may not want to contemplate divorce or other breakups, but they happen. “In case future events turn, you want agreements in a prenuptial agreement or other contracts to provide legal protection,” Reischer said. “Put it in writing, the intent of both parties.”
The Bottom Line
Deep, honest, and sometimes tricky discussions are essential pieces of the homebuying puzzle—especially when you earn very different incomes. Frank discussions early in the homebuying process may help you prevent future conflicts and choose a home that’s right for you both. Homeownership can have massive financial implications for both partners, and facing these conversations head-on can help you stay aligned—and preserve your investment.
