It’s increasingly common for people to live together but not be married. For example, in the past 20 years, the number of unmarried couples living together has almost tripled. You might be planning to wait to get married, or maybe you’re not going to at all, but what if you want to buy a home together?
It’s possible to buy a home as an unmarried couple, but it can be a little more complex than it is for a married couple.
The following are some considerations to proactively think about before you start the process.
Who’s Going To Apply for the Mortgage?
When you aren’t married, but you want to buy a home together, one of the first things you’ll have to think about is who’s applying for the mortgage. The person in the relationship who has the strongest financial history is the one who needs to do it in almost all cases.
When you aren’t married, you have to apply as individuals typically.
Go over financial factors like credit scores, incomes, debt-to-income ratios, employment status, and assets to figure out who has the stronger financial standing. Not only will that person have a better likelihood of approval, but they’ll also qualify for better terms like lower interest rates.
Some lenders may let you apply for a mortgage together, although it’s not extremely common. If you apply together, it can help or hurt you. The benefit is that you may qualify for a larger mortgage since you have a combination of two incomes. The downside might be if your partner has a lower credit score, and the lender could base their decision on that.
How Will You Hold the Title?
The title of a home is proof of ownership. There are a few options here:
• Joint tenancy is one option in which both you and your partner will have equal shares of your property. This will include the right of survivorship, meaning that if one of you passes away, the survivor will receive the deceased’s half of the property.
• Another way to deal with the title is called tenants in common. Under this arrangement, you’re co-owners with equal rights to the property. It’s different from joint tenancy because you hold titles individually for your share of the property. You can dispose of your individual ownership. There isn’t a right of survivorship and the other partner doesn’t receive the decedent’s property share if they pass away. Instead, the property would go to the heirs of the person who passed away.
• A living trust of real property is a way to set up the arrangement also. The trustee holds the title for the beneficiary who has all of the management responsibilities and rights.
What About a Cohabitation Property Agreement?
Whether you’re married or not, when you buy a property together, you’re going to accumulate equity. However, you’re not going to have the same level of property protection as a married couple, meaning you might want to go further to protect yourself.
One way to do this is to have an attorney create what’s called a cohabitation property agreement, outlining who owns what. This is something you’ll fall back on if you separate.
A cohabitation agreement should outline how you’ll share expenses related to the home you buy, buyout terms, an exit strategy if one of you wants to sell, and a process for how you’ll resolve any disputes. Your cohabitation agreement will also include the type of ownership on the title and deed.
There are a few other things to think about in addition to what’s above.
First, if your name is on a mortgage and your partner stops contributing to payments for any reason, you’re both equally liable. If you can’t make the payments without their financial contribution, you may be faced with foreclosure.
If you get a joint loan, your name will stay on the mortgage unless you refinance.
Finally, only one of you is eligible for the mortgage interest tax deduction since unmarried couples file taxes separately.
The best thing to do before buying a house as an unmarried couple is sit down and carefully go through your finances, and make sure you’re on the same page before you proceed with anything.