As committed as you may be to your partner, you may not be ready to tie the knot. That’s ok. You’re not alone! You can still enjoy owning the perfect home together as an unmarried couple. Priorities for what the “American dream” means have shifted, with homeownership now commonly taking the lead over marriage and having children.
This is especially true as millennials have become the majority of first-time homebuyers (representing roughly 37% of the market). However, it’s not just millennials! According to a Pew Research Center report:
“Although half of the unmarried couples living together are 35 or younger, a remaining quarter of those folks are 50-plus. Regardless of age, though, the key to buying a home as an unmarried couple is preparation and lots, and lots of communication.”
Which brings us to the first step…
Step One: Discuss Each of Your Finances, Warts and All
Qualifying for a mortgage is not something to take lightly, on both the borrower and lender side. When looking to do so, every facet of your financial situation(s) comes into play, such as:
- Your salary or annual wages
- Recent and existing loans (car loans, student loans, store cards, etc.)
- Credit score and history
- Savings accounts
- Any large cash amounts recently are withdrawn or deposited
- Anything else that impacts your income, debt ratio, or raises red flags
Bottom line: Now is the time for either side to come clean about any potential issues that would prevent you from getting a good rate or qualifying to begin with.
Step Two: Address The Risks, Not Just The Rewards
Since unmarried couples are considered individuals in a court of law, it should be no surprise you or your partner are not protected by the same property laws that married couples are.
This essentially means it’s up to you and your partner to outline how your home will be handled if a separation or death happens to occur.
That’s where getting a partnership agreement written up can help!
What Does A Partnership Agreement—aka “Home-buying Prenup”—Cover?
When having one created, it should outline:
- Who is contributing toward the mortgage (and how much)
- Details on how the mortgage will be paid
- Who owns what percentage of the property
- How paying for expenses toward repairs and upgrades impacts equity
- What happens if the house is sold, or how it’s handled if you separate
- How the dispute process will work
Although nobody likes to think about bad things happening in their relationship, you can (and should) also detail what happens if one partner can’t—or no longer wants to pay toward their share of the mortgage.
The reality is buying a home is a huge, exciting milestone. However, it’s typically also one of your largest risks and assets. Since nobody truly knows what the future holds, both sides must be fairly protected.
Step Three: Choosing The Right Title For Your Situation
Buying your dream home with your partner isn’t just about location or price; it’s also about having a contract in hand.
It’s also important, especially buying as an unmarried couple, to choose the right type of title once you’ve set your sights on the property you want to purchase.
You’ll want to double-check what the options are in your specific state. Here are the commonly used three options:
Option #1: Tenants In Common – Instead of a 50-50 split, a Tenants In Common title allows you to “customize” ownership. In other words, you can scale who owns what percentage of the property, based on each side’s financial contributions.
- This is good when: If one side should have greater ownership because they’re paying more toward the monthly mortgage payments or contributed a much larger portion of the down payment.
- This is bad when: If you’re not in your partner’s will and they pass away, you will not automatically be entitled to their side of the property. Instead, it goes to whoever is named in a will or living trust and that could lead to disputes with relatives.
Option #2: Joint Tenancy – You and your partner each own 50% of the property. Unlike tenants in common, you’re also automatically entitled to their share of the property if they were to pass away.
- This is good when: You both agree equal ownership makes sense, and want the additional peace of mind of “right of survivorship”, in the unfortunate event one partner dies.
- This is bad when: If you have a rocky breakup and one side refuses (or becomes unable) to buy the other side out, it could create a lot of legal and credit hassles.
Option #3: Sole-Ownership – Exactly what you expect. Only one person’s name is listed on the deed, and they have all the rights (and legal/financial obligations) that come with ownership.
- This is good when: If one partner’s credit is currently damaged, having just one name applying could help with getting approved for a mortgage. However, remember that even if you then help with paying the mortgage, ownership will come down to whose name is on the deed.
- This is bad when: You could put all sorts of money toward the mortgage, repairs, or upgrades but risk walking away with nothing to show for it.
(Note: Sole-ownership may also be a good option if you and your partner’s incomes are very different. In that case, this type of title could allow you to save some money in the form of taxes.)
Just as purchasing car insurance doesn’t mean you plan on going out and wrecking your car, getting these details down on (legally-binding) paper doesn’t mean you plan on eventually breaking up. Surround yourself with a team of professionals who can help you, like a tax advisor, attorney, and mortgage lender. They will be able to assist you both once they understand your circumstances.
As with the car insurance analogy, you’re simply making sure both sides are safe and covered in the worst-case scenarios that life can potentially throw your way.
With the right levels of communication, transparency, and mutual goals as a couple and future homeowners, buying a home can still be an exciting and life-changing journey to share!
Make sure you work with a professional who can craft a mortgage solution for you. We are here to help you when both of you are ready to open the front door to your new home.
Not a commitment to lend. Programs available only to qualified borrowers. Programs subject to change without notice. Underwriting terms and conditions apply. Purchase and rate/term refinance. Primary residence only. Some restrictions may apply.
It is important to talk with a tax advisor and/or attorney regarding your circumstances to make informed decisions.
Opes Advisors, a Division of Flagstar Bank | Member FDIC | Equal Housing Lender
While Opes Advisors, a division of Flagstar Bank, uses all reasonable efforts to ensure that this information is current, accurate and complete on the date of publication, no representations or warranties are made (express or implied) as to the reliability, accuracy or completeness of such information. Opes Advisors, a division of Flagstar Bank, therefore, cannot be held liable for any loss arising or indirectly from the use of, or any action taken in reliance on, any information appearing in this.