If you’re in a committed relationship but marriage is on the back burner, your dream of buying a home doesn’t have to be. In fact, eight percent of all first-time home buyers in 2017 were unmarried couples, according to an annual report with the National Association of Realtors. While this trend is on the rise, it is still important to understand the risks while learning how to avoid the potential pitfalls.
Ask the Awkward Questions
No one wants to think about the potential for breaking up down the road but taking the step towards home ownership requires asking some personal questions. The mortgage doesn’t disappear when the relationship ends, so signing a co-ownership contract is a smart, safe idea to handle any “what-ifs.” This contract answers basic questions such as what happens to the property if you split or who pays utility bills for major repairs.
You also need to get on the same page about each other’s financial information including income, student loans, credit card balances, and credit scores. Not only will this information help you estimate how much house you can afford, but you’ll also need to determine how much money each person can contribute to the down payment, closing costs, and monthly mortgage payments.
It’s important to understand that lenders treat married couples as a single entity and unmarried couples as individuals. If one applicant has a poor credit score, it may reduce the amount lenders will offer and will also lead to less favorable rates and terms. Also, keep in mind that if one person stops contributing to the mortgage, the other will be liable as a co-signer to pay for the whole thing.
Choose the Right Title Option
There’s more than one way to own a house, and choosing the best title option is especially important for unmarried couples. Options vary by state, but the three basic types are sole ownership, joint tenancy, and tenants in common.
Sole ownership means only one name is recorded on the deed and that person has all the rights and responsibilities of ownership. This route is usually taken if one partner’s credit is so bad that the couple would never qualify for a mortgage together. Joint tenancy means the couple owns equal shares of the house, the biggest benefit being that neither owner can sell the house without the other’s permission. Tenants in common, the most common option among unmarried buyers, means there is an unequal percentage in ownership of the house. However, if one person dies, that partner’s share can be left to whomever the person wishes. In other words, the share doesn’t automatically go to the other tenant in common.
So, there are some extra steps to take to avoid some of the risks of buying a home before saying “I do.” If you are thinking about buying and have questions, make sure to reach out to us. We’ll show you the way home!