Buying a House Before vs After Marriage in Canada
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Buying a house before marriage is a major life event that can affect both your personal and financial relationship with your partner. It’s important to carefully consider the long-term implications of such a decision and make sure that both parties are on the same page.
In this article, we’ll look at the pros and cons of buying a house not married vs as a married couple in Canada.
Key Highlights
- The most important factor when buying a house is whether you are financially and emotionally ready to take on the responsibilities of homeownership. Whatever your marital status, it’s important to carefully consider your financial situation, legal rights, and relationship dynamics before making a decision.
- One of the pros of buying a home before marriage is that you’ll build your equity faster than if you wait until after marriage.
- If both your credit scores are high and both have low debts, you’ll be able to have a larger mortgage at the best rate.
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Your Guide to Buying a Home Before vs After Marriage
As mortgage specialists in Canada, we often get the question: Is it better to be married when buying a house.
Single vs Joint Application Process
The first thing to keep in mind is that your marital status has no influence on your ability to contract a mortgage. So let’s look at the mortgage process as a single application vs a joint application.
The Pros & Cons of a Single Application
If you’re considering owning a house before marriage, you’ll want to be aware of the pros and cons of a single application. One of the arguments in favour is that if your partner has a lower credit score than yours, this will influence the decision process as your application will only take into account your own financial situation. Also if you have less debt than your partner, then the application will only consider your own debt to income ratio, leading to a better mortgage rate. The main inconvenience of applying as a single person is that your partner’s income, even if high, will not be considered your debt-to-income ratio, leading to a potential small mortgage.
The Pros & Cons of a Joint Application
On the other hand, if you’re considering applying for a mortgage in a joint application, there are also marriage pros and cons checklist to consider. The main advantage is that if you’re using both incomes in the application, then you’ll be able to apply for a larger mortgage. On the flip side, since you’re applying in a joint application the mortgage decision will be based on the lower of the 2 credit scores.
Sole Ownership vs Joint Tenancy
It is important for individuals to carefully consider the legal and financial implications of sole ownership versus joint tenancy when recording the purchase through the deed, and to seek legal advice if they have any questions or concerns.
As a sole owner, you have complete control over the property and can sell, transfer, or dispose of it as you see fit. If the owner of the property dies, the property will be distributed according to their will or go to probate (if they do not have a will).
As joint tenants, you have the right to use and possess the property, and any joint tenant can sell or transfer their interest in the property without the consent of the other joint tenants. If one joint tenant dies, their interest in the property passes automatically to the surviving joint tenants.
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How Marriage Status Impacts Your Mortgage Rate & Application
Even though your marital status doesn’t impact your ability to contract a mortgage, it will have an impact on your mortgage rate and application in general.
Single-income Households
The Gross Debt Service (GDS) ratio is a measure of a borrower’s ability to afford the payments on a mortgage. It is calculated by dividing the borrower’s monthly housing costs (including mortgage payments, property taxes, and heating costs) by their gross monthly income.
The GDS ratio is an important factor in the mortgage approval process so if you’re a one-income married couple in the application process, you could end up getting a smaller mortgage or higher interest rates because you’ll qualify together but earn only one income. The 2 combined, your GDS/TDS will be impacted.
Credit Score Implications
When you are in the process of buying a home, your credit score is one of the factors that lenders will consider when determining whether to approve your mortgage application and, if so, at what interest rate.
When applying with a joint application, your mortgage provider will take the lower of the credit score to base their decision on. A higher credit score can lead to a lower interest rate on your mortgage, which can save you thousands of dollars over the life of the loan. On the other hand, a low credit score can result in a higher interest rate or even the denial of your mortgage application. It’s important to understand how your credit score can impact your mortgage application and to work on improving it if necessary.
Tax and Legal Issues With Buying a Home Before Marriage
There are a few tax and legal issues to consider if you are thinking about buying a home before marriage
Legal Rights for Common Law Couples vs Married Couples
Common law couples, also known as cohabiting couples or unmarried couples, are individuals who live together in a committed relationship but are not married. In Canada, common law couples do not have the same legal rights and obligations as married couples. However, common law couples may have certain property ownership rights and responsibilities depending on the laws of the province or territory in which they live. One way of establishing what would happen in a case of separation or death is to draft a cohabitation agreement.
In some jurisdictions, common law couples may have the right to hold property as joint tenants, which can give them both ownership rights to the property. This means that if one partner dies, the surviving partner may have the right to inherit the property or a portion of its value.
The Family Law Act
The Family Law Act is a federal law in Canada that governs family law matters, including marriage, separation, divorce, and how to separate property. The Act sets out the legal framework for these matters and provides guidance on how they should be handled.
FAQ
Here are answers to some frequently asked questions regarding buying a house before versus after marriage in Canada.
Is it better to be married before you buy your first home?
There is no one-size-fits-all answer to this question of whether it’s easier to buy a house when married, as the decision of whether to buy a home before or after marriage will depend on a number of factors, including your financial situation, legal rights, and relationship dynamics.
Do you lose first-time home buyer incentives when you get married?
If you are a first-time homebuyer and you get married, your marital status will not typically affect your eligibility for first-time homebuyer incentives. However, your spouse’s income and financial assets may be taken into account when determining your eligibility for these incentives, as well as the affordability of the home you are purchasing.
Who gets the house when an unmarried couple splits up?
If an unmarried couple splits up and they live in a house together, the ownership of the house will depend on how the property was titled. If the property is held in both parties’ names as joint tenants, then each party has an equal ownership interest in the property and either party can sell or transfer their interest without the consent of the other.
Final Thoughts
In addition to discussing property ownership, it’s also a good idea for couples (before and after marriage) to discuss other legal issues such as financial planning, estate planning, and the division of assets in the event of separation or death. This can help the couple protect their interests and ensure that their wishes are carried out.
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