Unmarried But Buying Together? 5 Things to Plan For
You may not have said “I Do” to your significant other, but that doesn’t mean you can’t partner up and buy a home together. Married or not, buying a home is a big commitment. However, it presents some unique challenges for unmarried couples. That ’s why it’s so important to understand the ins and outs before you both sign the dotted line and become homeowners together. Below, we’ll highlight five things you should plan for when purchasing a home as an unmarried couple.
Discuss your finances
If you’re serious about buying a home together, you should also be in tune with one another’s financial situation. Before you even sit down with a lender to discuss your financial background, you should have a heart-to-heart with your partner to review all of your financial history, including your credit score, income and any debts you may have tied to your name. After all, you don’t want any surprises to pop up and cause conflict after the mortgage application process begins. If one of you has poor credit, it could affect your potential to gain approval for a mortgage. If you know this beforehand, there’s a potential that the holder of good credit could apply for the mortgage alone – though that may mean scaling back on how much house you can afford.
Determine how costs will be split
If you already live together, you might have a system in place for deciding who pays what when it comes to bills and other expenses. However, things may be a bit more complicated when it comes to your mortgage. First things first, you’ll have to figure out how to split the down payment and closing costs when you buy the home. And you’ll still need to determine how to handle the monthly mortgage payment, utilities, and who will pay for emergency repairs or ongoing maintenance to the home. It’s a good idea to lay all of this out in writing with a real estate attorney in order to keep track and create a legally binding contract between you two.
You may find it beneficial to create a joint bank account solely for funding your home-related expenses, even if you prefer to keep your other funds separate.
Understand ownership options
You may be buying the home “together” and splitting the cost, but how you choose to title the home is something you two should consider carefully, as it can have a huge impact on the future. Generally speaking, you’ll have three options to choose from (depending on your state laws, of course):
Joint Tenancy – You both own the property equally and if something were to happen to one of you, the other would automatically inherit the other’s stake and own the entire property.
Tenancy In Common – You both own a specific percentage of the property, but if something happens to one of you, the ownership interest will go to whoever is specified in a living will or trust. If there is no will or trust, it automatically goes to the next of kin (and not the significant other).
Sole Owner – In some cases, you might find it makes more sense for a single person to retain full ownership rights. For example, if only one of you will be paying for the home or if one person has poor credit.
This decision is one that shouldn’t be taken lightly; in fact, it may be the single most important factor when deciding to buy a home with someone you aren’t married to.
You should also be aware that if you chip in on paying for the home but aren’t listed on the title, you most likely won’t be able to deduct mortgage interest on your tax return.
Consider the foreseeable future
Every person should do this before buying a home (regardless of whether you’re married, single or coupled up!) – think about where you see yourself in 3 to 5 years. Do you think you’ll move for a job opportunity? Do you want to start having kids? Significant life changes can have a huge impact on your decision to buy a home and the type of home you choose. A good rule of thumb is to plan to live in the home for about five years before moving on, as this will give you some time to build equity. Be sure to discuss your future plans together before moving forward with the home buying process – it will certainly help guide your decision!
Always have a backup plan
Life happens, and sometimes things don’t turn out as planned. In this case, when you buy a home together as an unmarried couple, there are technically no legal protections in place if you two decide to part ways. It’s a good idea to draw up a partnership agreement – similar to a prenuptial agreement – for buying a home together. You’ll want to cover details such as what happens to the home in the event of a split. Who will pay for utilities or expensive repairs? While you might assume you two can work things out in a worst-case scenario situation, it’s best to avoid the risk altogether and go into your home purchase with a written agreement. Buying a home is an exciting moment and a great investment for your future, so it’s important to ensure you’re fully prepared to take this next step with your significant other. It’s always wise to consult with a financial professional or your mortgage banker before making this leap into homeownership as an unmarried couple.