When you’re in a new relationship, one of the best ways to cement your love for one another is to finally own a home together. Apart from being a great romantic gesture, it also represents your willingness to commit to your significant other, long-term.
If, however, you aren’t married yet or are thinking twice about marriage but are considering buying a condominium or shop for a new home, there are some things to consider, especially if you don’t get your happily ever after. Plus, being unmarried doesn’t give you the same legal status as married couples do, so buying a property together can be tricky.
However, it shouldn’t keep you from shopping for your dream home with your partner — with or without a ring. All you have to do is be more mindful of the legal and financial considerations that come with this purchase. Finances, ownership, credit scores and the unit will be part of a long-term commitment, after all.
Despite the challenges, many unmarried couples choose to buy a property. A study reported that one out of four millennial couples buy homes before they marry. So if you’re a couple wondering if you should buy a home or a condo unit, here are some things to consider.
Consider the Title
Before you dig deep into your house hunting checklist, think of the title first.
One of the most important decisions you’ll make when purchasing a residential property with another person is how you’ll split the ownership of the house (aka how you’ll “hold the title”). Just like how the mortgage shows who is in charge of paying off the loan, the title shows who the owner of the property is.
Laws dictate what happens to shared properties in case of a divorce. With unmarried people, however, the couple must forge their path and consider the title.
Different states have different rules concerning the title, but you will have three options when it comes to titling your new home:
- Sole ownership. If the title is under sole ownership, it means that only one person serves as the legal owner. If your partner has the title under sole ownership, know that you won’t have legal rights to the home or condominium. If the relationship ends, you might lose your home and the money you paid for the mortgage.
- Tenancy in common. This title type allows for unequal ownership, which means one partner can own 60 percent of the property while the other will only own 40 percent. A tenancy in the common title is helpful if one person in the relationship forks over most of the money paid for the down payment. If you choose this title, keep in mind that the other party can sell their share of the home without informing the other.
- Joint tenancy with right of survivorship. With this title, both parties have an equal share. If you want to sell your home, you can’t do so unless you have the permission of the other.
Going Solo on the Mortgage
If one of you has a lower debt-to-income ratio or higher credit scores, you or your partner should consider applying for the mortgage on your own. You can consult with lenders to shop for loans and rates that you can qualify for together and individually.
If you’re unsure of how long the relationship will last, remember that the burden of paying the debt will legally fall on your shoulder (or whichever of you will qualify for the loan) — no matter what the promises of your co-borrower are. Whoever’s name is on the title will have the rights to the home, even if they’re not contributing financially.
On the other hand, if your partner is applying for the mortgage on their own and insists on keeping you off the title, consult with a real estate lawyer to know your rights regarding living in the home and the reimbursements for payments in case the relationship ends.
Draw Up an Agreement
Once you’ve determined the type of title and how you’ll pay the mortgage, put everything down into writing. Think of this as a cohabitation agreement or your version of the prenup (minus the wedding, of course).
The agreement should outline who will cover which expenses (mortgage payments, taxes, utilities and insurance) during your stay, as well as a backup plan in case of unforeseen circumstances (e.g. loss of income, breakup or death). If one of you will pay for the down payment, including a schedule of repayment for you or your significant other.
Although buying a home with someone you aren’t married to isn’t different from buying a property with a spouse, it can add a layer of complexity to an already complicated process. To keep things smooth, communicate openly, think carefully and make contingency plans.