Unmarried Couples Buying a Home Together Need To Address These Issues

What to Know When Buying a Home With Someone While UnmarriedUnmarried couples face a unique set of challenges when it comes to buying a home together. Unlike married couples, who have built-in legal protections and guidelines for dividing assets in case of divorce, unmarried couples do not have the same level of security. According to U.S. Census data, over 20 million people, which accounts for 8% of American adults, live with an unmarried partner. And among these couples, many choose to purchase a home together before getting married or without ever planning to marry. 

This trend is on the rise, even though it can be fraught with potential pitfalls and complications. When unmarried couples decide to invest in a shared property, several crucial issues need to be addressed to protect their interests, financial security, and the health of their relationship. We'll walk you through some of the top issues unmarried partners should consider before purchasing a home together. 

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

Talk Openly About your Finances

Taking out a mortgage can have a significant impact on your finances, so before you consider buying a property together, be honest and transparent about your financial situation. Open communication is crucial in any relationship. According to L.A. couples therapist Tina Marie Del Rosario, the power of communication is the backbone of any successful relationship. 

That means disclosing your income, bills, credit scores, employment status, and savings or additional assets to each other before applying for the mortgage. If by any chance one partner gets into debt and cannot pay, the creditors can take legal action. A judgment against one partner is a lien on the property and affects both partners' rights to the home.

This conversation helps you get a better sense of your financial compatibility, and it will help you decide if making the leap to homeownership with your partner is a wise decision. Beyond financial matters, you will also have to be upfront with your expectations, needs, and goals. Buying a home that one partner is secretly unhappy with is a recipe for resentment and frustration down the line. So all lines of communication should be clear from the start. 

Consider your Mortgage Options

Before house hunting, it's wise to assess different mortgage options and decide who will be the applicant. When unmarried couples seek a mortgage, they typically apply individually. To secure more favorable mortgage terms and interest rates, the partner with the stronger financials and higher credit score might consider being the sole applicant. 

If this is the case, the other partner's name will not appear on the mortgage. However, both partners' names can still be listed on the property deed and take equal responsibility for paying off the loan. 

Another option is to apply jointly for a mortgage, and in this case, both partners are equally responsible for making payments and are named on the mortgage. This might be a more suitable option for couples who have similar financial standings and want to share the responsibility of homeownership.

Discuss How You Will Split Costs

In a cohabitation agreement, couples can outline how they will split the costs of homeownership, including the down payment, mortgage payments, utilities, and maintenance fees. How you will split the expenses depends on what you agree on. Some couples may choose to split the costs equally, while others may base it on their income or financial contribution to the down payment. Whatever method you choose, you should feel comfortable with it, and it should work well for your respective financial situation. 

Some couples prefer dedicating a joint bank account for shared expenses, including mortgage payments, and each partner contributes a predetermined amount to the account each month. This method can help ensure that bills are paid on time and reduce potential conflicts about who is responsible for covering specific costs. 

Create a Cohabitation Property Agreement that Works for You

One of the most critical issues to address for unmarried couples buying a home together is what happens if the relationship ends. It’s unromantic, and no couple wants to talk about breaking up, but it’s essential to be realistic and have a legal agreement in place. Unlike married couples, unmarried partners do not have the same legal rights and protections. A cohabitation property agreement is a legally binding contract detailing the division of property and assets if the relationship dissolves. The agreement contains elements such as:

  • The type and percentage of ownership on the deed and title
  • How mortgage payments and other expenses will be split
  • Buyout terms
  • How disputes will be handled
  • An action plan if one partner loses a job
  • Exit strategy in case of a breakup—who moves out, who stays?
  • Household responsibilities and expectations

Decide on How to Hold the Title

The title of a property refers to the legal ownership or interest in the property. It lists the physical description of the property and demonstrates how the owners hold an interest in it. When a home has a mortgage, the lender retains ownership until the loan is cleared. However, if only one partner is listed on the mortgage, both individuals can still be named on the deed, which shows ownership. There are three ways unmarried couples buying a home together can hold the title:

  • Sole Ownership: This means only one person is recorded on the deed, and they bear the responsibilities of ownership, as well as the right to sell, rent, or transfer it regardless of the breakup. Note that your name can still be on the property deed even if it's not on the mortgage.
  • Joint Tenancy: Both partners have equal rights and interests (50%) in the property. Both names are recorded on the deed, and if one partner dies, the other automatically inherits their share. It is essential to know that in this kind of ownership, you cannot pass on your share of the property to someone else through a will.
  • Tenants in Common: In this case, both partners can own unequal shares of the home (for example, 70/30 or 60/40). There is no right to survivorship. If a person dies, the surviving partner does not automatically inherit their share. Instead, it goes to whoever is named in the deceased's will or through state laws of intestacy if there is no will.

It is crucial to plan your estate with your partner and determine which type of ownership works best for you based on your circumstances and plans.

The Bottom Line

An unmarried couple buying a home together is possible, but they must be aware of the pros and cons of each situation before taking the big step. Since there isn't a prenup in place to protect each partner's interests, it is crucial to have open and honest communication about your finances, expectations, and goals. Consider consulting a financial advisor or real estate lawyer to help you navigate the legalities and make sound decisions for your future. Remember that buying a home with someone is a significant commitment, so take the time to carefully consider all aspects before signing on the dotted line.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

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