Point of Interest
Buying a home as an unmarried couple is happening more often, but there are interesting considerations to consider. Compare credit scores, create a joint bank account, determine a split-cost plan, sign a contract, and finalize the title before buying a house.
It’s becoming more common to see unmarried couples buying a house together and co-signing mortgage loan terms. According to the National Association of Realtors 2020 Home Buyer and Seller Generational Trends report, 9% of recent homebuyers were unmarried couples, a 1% year-over-year increase.
When you’re not married, you don’t get the same legal protections you would if you were buying a home as a married couple. Instead of being treated as a unit, unmarried couples are viewed as individuals, which can complicate things and add to any other mortgage fears you may be facing.
5 steps unmarried couples should take before buying a house
A home purchase is probably one of the most significant investments you’ll ever make. It’s essential for unmarried couples to have early and frequent homeownership conversations to get on the same page during the process.
Failing to do so could result in costly, time-consuming situations. Your credit score may take a hit if your partner fails to pay the mortgage. You could lose your home if your partner breaks up with you. You could be forced to refinance your home loan if you want to stay in your home, but your partner decides to leave.
To prevent complicated and potentially stressful events like these, take these steps before you purchase your home as an unmarried couple.
1. Compare credit scores
When you’re purchasing a home as an unmarried couple, your credit scores will influence your home loan rate if you’re both going to be on the mortgage. If one person in a couple has a significantly worse credit score, it may make sense for you to only have the person with the higher credit score on the mortgage. Then, work out an agreement for how the other person will pay their share.
If you do only have one person on the mortgage, that person must be able to take on the home loan debt and make on-time payments. Otherwise, their credit score will suffer, or worse, the bank could repossess the house.
2. Open a joint bank account
A joint bank account you dedicate to making home payments may be helpful. You can use the account to pay the home loan, homeowners insurance, property taxes, and home maintenance.
One interesting benefit to a joint bank account is you’ll both be in the loop about payments made toward the home, and you both can contribute to payments by depositing money into the account. It’s also helpful because you can set up automatic deposits and payments, so you’re not relying on each person to remember to pay bills.
3. Decide how costs will be paid for
When you’re on a home loan, you’re responsible for the debt. To avoid stretching yourself too thin, move the focus away from how much house you can afford to how much debt you’re willing to take on. Making yourself house-poor is one of the worst mortgage mistakes you can make. And if unexpected expenses pop up, you’ll be in a bind when the mortgage payment is due.
An interesting strategy is to find a mortgage you’d be able to pay with just one income. That way, if one partner loses their job or emergency expenses occur, you’ll still be able to make your home loan payment and protect your home.
4. Create and sign a contract
In this contract, you’ll want to include the type of ownership on the deed, what percentage of the home each party owns, and how you’ll handle payments. You’ll also want to include how you’ll feel a situation where one party wants to buy the other out, what you’ll do with a home if there’s a job transfer or position where you need to move, how you’ll handle homeowner disputes, and how you’ll deal with a situation where one person wants to sell their share of it and move on. Knowing these details going in will give you peace of mind and save you time and legal fees if a separation occurs.
5. Finalize title and ownership needs
As an unmarried couple, you can finalize your title as sole owner, joint tenants, or tenants in common.
Having a sole owner is risky for the person not on the title because the legal owner can sell or will away the house if they want to. However, the person on the title can take house-related tax deductions, save on taxes, and potentially get a lower mortgage rate when the other partner’s credit is poor.
Being joint tenants is an equal share agreement. If one joint tenant dies, their share of the home goes to the other joint tenant. One disadvantage is the surviving tenant may have to pay higher taxes on the home. Also, if one partner incurs debts, creditors could attempt to collect from their home equity.
Choosing tenants in common lets you take on different percentages of homeownership. However, if one partner dies, they can leave their share of the home to whomever they will it to, not necessarily the surviving partner.
What to watch for
Failing to make mortgage payments, going into debt, losing equity due to creditors, and forcing a sale of a home are all issues unmarried couples need to be aware of before purchasing a home together.
It’s not fun to think about a breakup or death when you’re coupled up, but it’s important to be aware of these issues before entering homeownership together. Discuss these situations before you take out a home loan and take the title.
Who gets the house post-breakup?
If you break up, one party could buy out the other party for full homeownership. The party who wants to keep the house would have to refinance the mortgage to get the other person off the home loan.
You may also choose to sell the house. Either party could force a house sale. If one party wants to keep the house, they’d have to buy the other person out and refinance the mortgage.
What happens to the property if one person dies?
If you have a joint tenancy arrangement, the surviving partner will inherit the other share of the property.
If you have tenancy in common or a sole ownership title, the deceased’s portion of the property would go to their estate and be distributed according to their will. That’s why people without a joint tenancy agreement should make sure they’ve designated the party they want their portion of the home to go to in case of their death.
The final word
Situations involving unmarried couples buying a house involve different risks than being a co-signer for renting conditions. The best way to stay protected when you want to co-sign for a home, or you’re co-signing mortgage loan terms as an unmarried couple is to work with a lawyer to ensure both your needs are met. That way, you can get settled in your new home without worrying about its future.
