An increasing number of couples are signing mortgage contracts before they ever sign a marriage license. According to MarketWatch, the number of unmarried couples aged 24-35 buying homes rose 4 percent between 2005 and 2017. And while buying a home before marriage can work out, it?s more complicated than buying a house as a wedded couple.
Unmarried couples who don?t make the right financial considerations could find themselves arguing their way through the homebuying process or end up in financial trouble if the relationship ends due to separation or death. To protect their relationship and their finances, unmarried couples should ask these three questions before buying a home.
How is our credit?
Married couples are privy to their spouse?s financial information, but unmarried couples could unearth surprises when applying for a mortgage. Although unmarried couples complete separate mortgage applications, both partners? finances affect the mortgage size and rate they qualify for. If one partner is hiding a shoddy credit score or a pile of debt, it will come out during the mortgage application process when they can?t get a competitive loan or are denied entirely.
Couples should discuss their finances with complete transparency before pursuing a mortgage. When financial challenges are out in the open, couples can work together to resolve them and achieve their goal of homeownership.
What can we afford?
Agreeing on a budget before shopping saves couples a lot of disagreement. However, couples who use mortgage estimates on websites like Zillow and Trulia to set their budget aren?t getting the full picture of what a home costs.
Couples should include these expenses when
calculating how much home they can afford:
- Closing costs, typically three to five percent of the mortgage
- Property taxes
- Homeowners insurance
- Primary mortgage insurance (PMI) if putting less than 20 percent down
- Repairs and upkeep averaging one to two percent of the home?s value annually
- Realtor commissions when selling, typically six percent
- Homeowners association (HOA) fees.
Once couples understand what they?ll be spending each month, they need to decide how they?ll split the costs. Some couples contribute to the down payment and homeownership expenses equally, but many split costs proportionally based on each partner?s income. Again, this is a question to answer before getting financially entangled with a mortgage.
How will the title be held?
Married couples are joint owners in their home by default. Unmarried couples, however, must decide how they?ll hold title to the property.
One option is to have one person be the sole owner. However, the American Bar Association advises against sole ownership if both partners are contributing to the purchase and upkeep, as it leaves the non-owner with little recourse if the relationship ends or the sole owner dies. Many young couples also need both incomes to qualify for a mortgage.
Couples who intend to be co-owners of their
home have two options for how they hold title:
- Tenants in common: The property is owned by both parties according to percentages of ownership. Upon sale of the home, each person receives that percentage as their share of the proceeds. If one person dies, their share is passed to heirs.
- Joint tenants with rights of survivorship: The property is owned by both parties in equal proportion. If one person dies, their share in the property passes to the other partner.
Joint tenants with rights of survivorship is usually the preferred option for committed couples. However, couples who prefer to leave their estate to a child or other heir may choose to be tenants in common.
There?s a lot to consider when buying a house with a romantic partner, from the size and style of your future home to the neighborhood where you want to live. However, the most important questions couples need to ask are the financial ones. That?s especially true when buying as an unmarried couple, as unwed couples don?t have the same legal protections as spouses. By addressing these questions before buying, unmarried couples can achieve their dream of homeownership together.