MORTGAGE BLOGPosted On May 03, 2018
The National Association of Realtors reported 16% of first-time home buyers in 2017 were unmarried couples, the largest share since the organization started tracking in 1981. Committed couples buying a home together before marriage is a popular choice especially with mortgage rates, rental costs, and home prices on the rise. Some couples are willing to own and start building equity, rather than waiting and risking higher rates or home prices.
According to a Time MONEY poll, 40% of millennials thought it was a good idea for a couple to buy a home together before getting married, and 37% believed the purchase should happen before marriage. Like any financial transaction, before an unmarried couple buys a home together, they should consult a mortgage professional to weigh the benefits and risks. Here are some suggestions for a successful transaction based on research from real estate professionals around the country.
Sign a “Prenup” for the Home
Just like the option to sign a prenuptial agreement related to the details of the actual marriage, couples can sign a prenup for the home purchase. Couples can accomplish this by meeting with an attorney or other legal professional and drawing up a mutually beneficial co-ownership contract before buying the home. In the event of a breakup or tragedy like the death of a partner, all of the important questions are answered ahead of time.
Together or Separate?
As an unmarried couple, the parties have the option to apply for the mortgage together or have the individual with the stronger credit score apply. However, if only one person applies for the mortgage there will only be one income on record, possibly reducing the amount of the loan they qualify for, and only one person legally responsible for payments and entitled to the asset in the case of a break up. Title options vary from state to state but can include sole ownership, joint tenancy, or tenants in common.
Sole Ownership – only one name is legally recorded on the deed and has all rights and responsibilities of ownership. This is an option if one person has bad credit or a high debt to income ratio. But, the person who is not on the title, runs the risk of walking away without any equity in the asset regardless of whether or not they contributed to the down payment, mortgage payment, or other home maintenance costs.
Joint Tenancy – both parties own equal shares of the home. If one of the partners passes away, their share automatically transfers to the surviving partner. In the case of a break up, the couple would either sell the home together and split the profit, or one partner would sell their share to the other. This could become problematic if the couple is not on the same page with who will occupy and who will sell after a break up or did not sign a prenup ahead of time.
Tenants in Common – ownership of the home is split unequally. Couples may choose this option if one party contributed more toward the down payment or pays a larger proportion of mortgage payments. With this option, there is no automatic transfer of property if one partner dies. This desire would have to be conveyed in a living will or other legal agreement ahead of time.
Plan for the Future
If the couple does choose to marry, after purchasing their home together, they will need to plan on revising the deed to their home to reflect their marital status. This process can be achieved through a “quitclaim deed,” a written document that facilitates the transfer of a real estate title.
When an unmarried couple buys a home together, they are entering into a business deal. Like any business deal, it is imperative to understand the whole picture ahead of time, including each other’s creditworthiness, cost management plans, and desired arrangement in the case of a dissolution of the partnership. Before making any home buying decisions, it is best to consult a mortgage professional.
Sources: Chicago Tribune, The Seattle Times, Time
