Whether you are a mother and daughter buying a two-family home together or a committed couple looking to start their family and opting out of the ‘I dos,” there are a thousand reasons why two unmarried people would be interested in buying a home together. In fact, a recent Zillow analysis stated that unmarried people represented 15% of the 24-to-35-year old buyers in 2015, a number that is on the rise as attitudes about marriage and family dynamics are changing rapidly.
It is becoming more commonplace for two people in non-married relationships to own a piece of property together, like when two best friends want to invest in a two-family property or two partners who both want ownership in a home, there is no wrong way to make a happy home buying experience. While it is always an exciting adventure for both parties, the process of buying a home can be different for unmarried couples or partners than it is for single or married individuals.
Though it is more common for couples to buy a house than it is for best friends or other partnerships to do so, there are a lot of benefits to cohabitation without marriage, namely being able to invest in the trendy market areas with rising home prices, which may be too difficult to do solo. Just remember to follow these tips to make the process run smoothly.
Talk About Your Financial Situation Together
Before you run off to sign on the dotted lines (actually, before you even begin to look at houses), it is important for both parties to find and agree on their individual and the overall budget for the home purchase. After a budget is in place, it is time to discuss your finances with your would-be co-owner openly and honestly.
Get a credit check done to ensure that both people are informed about each other’s financial standing. The last thing that anyone wants is to buy a home together and discover that your partner cannot afford monthly payments.
Title and Loan Decisions
When you buy a house with a partner, the largest issues that arise involve who is going to take a loan and whose name is going on the title. It is important to understand that married couples have more legal standing when it comes to mortgage and title issues, which is why anyone who is considering going into a home buying partnership needs to thoroughly research all options that will ensure both owners are recognized correctly.
Because of the unmarried status, lenders will generally require more details from both parties in order to provide the best loan options. Additionally, co-borrowers will each have to consent to a credit check.
There are three common choices for ownership of a property title. They include:
- A sole owner holds the title
- You both hold the title as joint tenants
- You both hold the title as tenants in common
One person solely holding the title, which might be done if the partner has bad credit or outstanding loans, is often risky to the co-owner whose name is not on the title. Though a co-owner may make monthly payments on the property and fully contribute to homeownership, there is no legal standing for the co-owner when it comes to the property decisions. Should there be a falling out or sudden death, without a name on the title, there is no legal ownership that the “co-owner” can claim. Essentially, the partner whose name is on the title can sell the home, will the home to another, or even legally force the partner to move out of the house.
Because this situation can be a sticky one for both parties, it important to have a legal contract that describes the rights of the unlisted, off-title owner. While it is not a stop-all solution for problems that may arise, it does allow the co-owner to have better legal standing.
Decide Who Pays
Though you may be in it together forever, if you are unmarried, you need to look at buying a house as a contract you are entering with a partner like any other. Because unmarried couples do not have the legal protections that married ones do, both parties need to take action to draw up a legally binding contract that designates who is responsible for which aspects of home financing and subsequent payments. For example, your partner may opt to cover the down payment in full if you can pay the mortgage, taxes, and utilities for the first 3 years on your own.
It is not unusual for couples to split homeownership expenses in a ratio that suits their financial standing. In many instances, a 70-30 split may strike the right balance and not a 50-50 one. Couples or partners should also decide in advance how their partnership will be dissolved upon a breakup or home sale. Determining ahead of time which party may buy out the other should the need arise or how fair market value will be determined.
Legal contracts like these can easily be drawn up by a real estate lawyer, and they will protect both parties in the event of a split. Should the financial situation of or one or both partners change down the line, the contract should be adjusted to accommodate current circumstances.
Set Up a Joint Account
While unmarried couples may choose to retain separate bank accounts throughout their partnership, if you are buying a house together, it is wise to open a joint account that is solely used for home costs. Have money from both accounts (in agreed upon amounts as laid out in your contract) transferred directly into this joint account. This will allow you to track incoming and outgoing home expenses and set up automatic payments for the mortgage.