For many LGBTQ couples, the legalization of same-sex marriage has empowered those who decide to tie the knot with the protections they need to pool their assets and purchase a home.
Consider these five tips when thinking about home ownership:
- Check your credit score
- Mind your debt-to-income ratio
- Prepare for the down payment
- Know your rights
- Review your pre-marital assets
Indeed, since the Supreme Court ruling on marriage equality in 2015, the housing market has seen a marked increase in both interest and demand for residential real estate from LGBTQ couples who are looking to put down roots, according to the National Association of Gay & Lesbian Real Estate Professionals (NAGLREP).
A 2017 survey found that 47 percent of NAGLREP members — which includes mortgage lenders, title companies, and real estate brokers — believe more same-sex couples are buying homes than they were before the marriage equality ruling and 46 percent said they believe the LGBTQ community is expressing more interest in homeownership in general.
While owning real estate can potentially be a bridge to wealth accumulation, it can also become a financial burden if you don’t shop smart.
Check your credit score
Before you begin house hunting, your first order of business is to check your credit score.
Why? Banks, mortgage companies, and other lenders use credit scores to determine how likely borrowers are to repay their loans. The higher the score, the lower the risk to the lender — and the lower the interest rate they will generally charge you.
Anything between 700 and 749 is usually considered “good” and eligible for favorable rate loans, while borrowers with a credit score of 750 or higher are likely to land the best possible rate.
“The difference between having a 700 and a 720 credit score, or a 680 and a 700 score, can cause you to pay tens of thousands of dollars more in interest over the life of your mortgage loan,” said Elijah Kovar, cofounder of Great Waters Financial in Minneapolis, Minnesota, in an interview.
Mind your debt-to-income ratio
To determine how much you can safely afford, take a look at your debt-to-income ratio, which is calculated by dividing your monthly debt payments by your gross monthly income. Mortgage lenders generally like borrowers to keep their debt-to-income ratio to 43 percent or lower, and may not qualify those with a ratio that is higher, according to the Consumer Financial Protection Bureau.1
While many financial advisors say consumers should earmark roughly 30 percent of their gross monthly income for housing, Kovar said he prefers a more conservative allocation of 20 percent — 25 percent at the most — which allows for breathing room in the event that you should lose your job, need a new roof, or encounter unexpected expenses.
For many first-time homebuyers, coming up with the cash for a down payment is a major financial challenge.
Most private lenders charge a separate fee, called private mortgage insurance (PMI), to borrowers who come to the table with a down payment of less than 20 percent, which is designed to protect them in the event that you should default on your loan.
PMI costs vary by lender, but generally float from 0.5 percent and 1 percent of the loan amount annually. That’s an extra $1,000 to $2,000 a year on a $200,000 loan, money that could be put to better use.
You may be able to save for a down payment by lowering your living expenses for a year or two before you seek a mortgage, setting any bonuses or raises you receive aside, and foregoing luxuries like vacations and car upgrades for a few years. You may also be able to sell some of your investments, get a second job, or borrow from a relative.
Know your rights
As you begin the process of buying a home, be aware that federal fair housing laws prohibit housing discrimination based on race, color, religion, national origin, sex, familial status, and disability. The Fair Housing Act does not specifically include sexual orientation or gender identity as protected classes, but LGBTQ individuals may be covered by the Act if it is based on nonconformity with gender stereotypes, according to the federal department of Housing and Urban Development (HUD).2
An underwriter for an FHA-insured lender may not, for example, reject the application of a gay couple who exhibits creditworthiness. Similarly, private lenders and underwriters involved with the USDA mortgage loan program for homebuyers in rural communities and the Department of Veterans Affairs home loan program are also specifically prohibited from discriminating against members of the LGBTQ community.
HUD suggests that LGBTQ consumers who believe they have been subject to housing discrimination contact HUD’s Office of Fair Housing and Equal Opportunity. They may also file a housing discrimination complaint online, or contact their state or local human rights agency to determine coverage under state or local laws.
Review your premarital assets
Same-sex couples who are legally married can now purchase property together titled as “tenancy by the entirety,” a legal classification previously only available to a husband and wife, which offers protection from creditors and guarantees that upon the death of one spouse, the survivor is automatically the sole owner of the property.
But many LGBTQ couples who have been together for decades bought homes together before they got married with title as “joint tenants with rights of survivorship.” While this offers protections in the event of a death, it does not protect against creditors, said Concetta Spirio, an attorney in Islip, New York, who works closely with the LGBTQ community.
Under such title, both partners have an equal share of the property, ensuring that the house passes to the survivor after the first partner passed away without the need for probate. Creditors, however, can still place a lien on the property — or a portion of the property — to collect the debt owed by one of the tenants, leaving the surviving partner financially vulnerable.
Others bought homes together with title “tenancy in common,” which does not offer adequate protections in the event of a death, said Spirio. While this type of title classification also establishes that each partner owns half of the property, it stipulates that when each tenant (partner) dies, their stake in the property may go to their heirs and not the surviving partner.
Home ownership is an exciting step for any couple, but it is also a big financial responsibility. Same-sex couples who are looking to put down roots should research their loan options carefully, consider their debt commitment, and review any premarital assets they own to be sure that the proper legal protections are in place.
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1 Consumer Financial Protection Bureau, “What is a debt-to-income ratio? Why is the 43% debt-to-income ratio important?” March 3, 2017.
2 Housing and Urban Development, “Ending Housing Discrimination Against Lesbian, Gay, Bisexual and Transgender Individuals and Their Families: Enriching and Strengthening Our Nation.”