5 Questions Unmarried Couples Should Ask Before Buying A House
Ashley Kilroy7-Minute Read
July 14, 2022
In the past two decades, the number of unmarried couples living together has nearly tripled from 6 million to 17 million, according to the United States Census Bureau. Whether they’re renting apartments or buying homes, many couples decide to live together without tying the knot. If you’re forgoing marriage but are considering purchasing a home with your partner, there are a few key factors you should consider first.
By preparing well, you can increase your chances of cohabitation bliss in your new dream home. Here are a few questions unmarried couples should consider before buying a house.
1. Who Is Applying For The Mortgage?
Buying a house is a major commitment. Before you begin searching for a home, you should compare mortgage options and determine who is applying for the mortgage. Unmarried couples will apply for a mortgage as individuals. This means the partner with the stronger financials and credit score may want to purchase the home to get better mortgage terms and interest rates.
Before applying for the mortgage, it’s good to review each other’s credit scores, debt-to-income ratios, incomes, employment statuses and additional assets. For instance, most lenders require a credit score of at least 580, but having a credit score of at least 620 may give you better options. If one partner has a credit score higher than 620, they may qualify for better terms and interest rates. By qualifying for the best rates and terms, you can save money on interest throughout your loan repayment.
You can get an idea of how much you’ll pay by using our mortgage calculator. Enter the estimated amount of your loan and interest to see what your monthly mortgage payment could be.
Some lenders may allow both parties to apply for a mortgage together. This may help you and your partner qualify for a larger mortgage since you’re combining two incomes. However, if one partner has a weak credit score, the lender may base their lending decision on the lower credit score. In this case, it might be best for one party to apply for a mortgage.
2. What’s The Best Way To Hold The Title?
Your title provides proof of ownership and a physical description of the property. It may also contain the liens on your property that might allow others to have a claim to it in certain situations. For instance, your lender will have a lien on your title until the mortgage is repaid in full.
There are several ways to hold the title of your new home. The way the title is worded can impact the way ownership is transferred as well as your rights to transfer ownership. Here are some options:
- Sole ownership: If one partner wants to own the property outright, they may decide to select sole ownership.
- Joint tenancy: If you and your partner want equal shares of the property, you may want joint tenancy created under a single instrument with the right of survivorship. This means that upon the death of one partner, the survivor receives the deceased’s share (half) of the property.
- Tenants in common: Under tenancy in common, the co-owners own undivided interest or equal rights to enjoy the property during their lives. This differs from joint tenancy because tenants in common hold titles individually for their share of the property and can dispose of or will their individual ownership. But unlike joint tenancy, there is no right of survivorship and no other tenant is entitled to receive the decedent’s share of the property. Instead, the property goes to the decedent’s heirs.
- Trust: A living trust of real property holds legal and equitable title to the real estate. The trustee holds the title for the trustor/beneficiary who retains all management rights and responsibilities.
How you title your property will impact the outcome of its sale. It can also impact the taxes and fees associated with selling your home. So, to determine the best way to hold the title for your unique situation, contact a real estate attorney or tax advisor.
3. Should You Get A Cohabitation Property Agreement?
When couples live together, married or not, they most likely will accumulate equity. But, unlike married couples, unmarried couples may not have the same property protections. Because of this, it’s wise for a couple to create a cohabitation property agreement with their attorney. This agreement will outline who owns what, and what will happen in the event the couple chooses to separate.
Without a cohabitation property agreement, you could experience time-consuming and expensive legal battles. Many agreements include the following:
- Type of ownership on the title and deed
- How income and expenses are shared
- How newly acquired assets are divided
- Buyout agreement
- Action plan for a job transfer
- Dispute process
- Exit strategy
Since purchasing a home with your partner is a huge financial undertaking, it’s important to protect your rights and assets. Creating a cohabitation agreement with an attorney can help you avoid future emotional and financial distress.
4. How Will You Split Costs?
In your cohabitation property agreement, you’ll also want to lay out how you and your partner will pay for the additional home expenses. How you decide to split the expenses will depend on what you both are comfortable with and what is suitable for your individual financial needs.
You may decide you want to open a joint bank account and contribute an equal amount automatically every month. Another option might be to divide up the expenses and have one partner pay for utilities and maintenance costs while the other partner may pay for lawn care services and cable. If one partner makes significantly more than the other, you may decide that they will pay a greater share of the property costs.
There is no right way to divide up the property costs. You’ll have to have these conversations with your partner and determine what is fair and what you can reasonably afford. Keep in mind you’ll also need to include additional homeowner expenses such as property taxes, homeowners insurance and HOA fees.
5. What Happens If One Person Wants To Move Out Or Dies?
Whether it’s a breakup or one person gets a job in another state, having a plan in place is essential. The house can be sold, or one partner can buy out the other. This is assuming that both partners are on the title to the home. It’s possible that if you decide to break up, the bank may force the sale of the property. If the party keeping the property isn’t able to buy out the partner who’s moving on, the best option would be to sell.
Depending on your agreement, any party who owns a portion of the property can force a sale. If you own 70% of the home and your partner wants to move out or break up, you may have to pay them 30% of ownership. If you’re both on the mortgage, then you may have to consider refinancing.
In the unfortunate event of one partner passing away, the title will determine what happens to the home. If the title states joint tenancy, the surviving partner will receive the deceased partner’s share of the property. If the title is joint tenants in common, the percentage of the home owned by the deceased partner will go to their heirs.
In this case, the deceased’s share of the property will have to be distributed depending on their wishes. That said, you may need to buy out the deceased party’s share of the home or sell the home completely depending on what the heirs decide.
FAQ: Buying A House As An Unmarried Couple
If you’re an unmarried couple buying a house together, finding the perfect place to call home is just the beginning. Here are a few common questions home buyers have when thinking about purchasing a house with their partner:
What happens if one of us is not on the mortgage?
Ultimately, the person whose name is on the title of the property is the owner of the property. This means they have full control over the home, and can sell it with or without their partner’s permission. The unnamed partner will have no ownership stake in the property.
What needs to change if I get married?
If you and your partner choose to get married after buying a house together, you’ll need to update a few documents. This will include the deed, title, homeowners insurance policy and any applicable utility accounts.
Can I add my partner’s name to the mortgage after buying the house?
The only way to add your partner’s name to the mortgage, whether you’re getting married or simply want to split ownership of the home, is to refinance into a new loan.
How will buying a house together before marriage impact your taxes?
Buying a house can help you save money on your taxes through the mortgage interest deduction. However, most lenders only send one partner a copy of the Form 1098 that shows how much interest you paid over the year. This means both partners will need to itemize their taxes and calculate the amount of interest each person paid throughout the year.
Do you need to speak to an attorney?
Though it’s not required, it’s always a good idea to work with an attorney when you’re buying a house as an unmarried couple. They’ll be able to make sure any rights of survivorship are put in writing and can be upheld.
The Bottom Line
Buying a home as an unmarried couple is a complex situation, especially since there isn't a prenup to outline the mortgage agreement. Considering that it’s important to have full transparency with your partner, make sure to discuss important topics such as your financials and your wishes for the property if you were to break up or pass away. Once you’re on the same page and are ready to start looking for a home, you’ll want to get preapproved for a mortgage. Learn more about preapproval and see how it can help speed up the buying process.
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