If you’re considering buying a house with a partner, you’re not alone. According to an annual report from the National Association of Realtors, slightly more than 20 percent of the homebuyers who fell in the 22 to 29 age group in 2020 were unmarried couples. Is that number likely to rise in the future? Time will tell, but My Mortgage Insider reports that 40 percent of millennials believe that it’s a good idea for unmarried couples to purchase a home together.
Buying a House with a Partner
Buying a house is a major financial commitment, and unmarried couples don’t have the same protections as married duos. They’re treated differently by lenders, and if things go wrong, they can’t count on the courts to step in and act as mediators in the separation of their finances and property. That doesn’t necessarily mean that buying a house with a partner is a bad idea. However, it does mean that you should take steps to protect your interests before proceeding with the purchase.
Deciding Your Financial Approach
Before taking the plunge, you need to think carefully about what you and your partner can each afford. That means taking the time to have a frank discussion about your respective incomes, assets, credit scores, and debts. Owning a home together ties your credit together. If your partner decides to walk away from a loan that you’ve cosigned for, you’re still going to be responsible for it. Therefore, it’s important to not bite off more than you can chew and to do what you can to protect yourself legally and financially.
As Rewire points out, buying a house doesn’t have to be a 50/50 deal. You may decide to have one person put down a larger portion of the down payment or pay more of the monthly mortgage payment in return for a larger percentage of the ownership. Be sure that you understand what lenders will be looking for and know exactly what your plan is before you actually purchase a home. Both parties should be clear on what their responsibilities are and how any disagreements will be settled.
Establishing a Cohabitation Contract
A promise made with the best of intentions doesn’t always hold up when times are tough. According to the New York Times, experts encourage anyone buying a house with a partner to see a lawyer and draw up a cohabitation contract that establishes what each parties’ responsibilities and benefits are. Even if you never need to use it, you won’t regret the added protection.
Choosing the Right Type of Title
Deciding how to title may seem like a minor concern, but it could have major implications, especially if one of the owners passes away. As My Mortgage Insider explains, there are basically three possibilities:
- Sole Ownership: If only one person’s name is on the deed, they are the sole legal owner. They have the legal power to sell it or bequeath it to anyone that they want. This could leave the other partner in a vulnerable position, so it’s rarely a great choice for an unmarried couple buying a home together. However, it’s sometimes used when one partner’s poor credit keeps them off the mortgage. In some situations, the second partner’s name can be added to the deed later, but this could create headaches with the mortgage, so you should consult an expert first.
- Joint Tenancy: Joint tenancy only works when ownership is split equally between partners. There are two crucial factors everyone should know about this form of title before selecting it. The first thing is the right of survivorship. If one partner dies, the other partner automatically inherits their share. This holds true even if there is a will stating otherwise. Second, neither partner can sell their share without the other partner’s permission. However, if the sale is allowed to proceed, then the new owners become tenants in common.
- Tenants in Common: With tenants in common, it’s possible for the owners to have unequal shares in the property. What happens to the property if one partner dies? They can leave their share to whoever they want. It doesn’t automatically go to the other partner.