Buying a home before marriage may not be the traditional route to homeownership, but it happens more than you might think. According to a recent survey by Realtor.com, about one-third (31%) of Americans have purchased a primary home with someone they aren’t married to, and for those aged 18 to 34, that number rises to 41%.
So if you’re considering buying property with your partner, know that you don’t have to be married to do so. However, it’s important to understand all the details before jumping into this process.
The Mortgage and the Deed are Separate
When buying a home, you’ll need to decide whose names will appear on two important documents: the mortgage and the deed.
The mortgage is a financial contract between the borrower and lender. It outlines who is responsible for repaying the mortgage loan under specific terms. The deed is a formal document that transfers ownership rights of the property.
Unmarried partners can have their names on both the mortgage and the deed if they want to be regarded as equal owners, according to Claire Hunsaker, a financial consultant and founder of AskFlossie, a financial community for women, in an email to The Balance. However, depending on each person’s financial situation, this may not always be the best arrangement.
Marriage Doesn’t Matter for Getting a Mortgage
You might worry that you have a lower chance of securing a mortgage if you are unmarried. Fortunately, this is not the case.
“Your marital status does not affect your ability to obtain a mortgage,” Hunsaker said. “But it may affect the size and type of loan you qualify for.”
It’s important to note that it is illegal for lenders to discriminate against you based on your marital status.
When applying for a joint loan, the lender will consider your combined income and savings, allowing you to afford a larger down payment and loan. However, when it comes to your credit, lending decisions are typically made based on the lower of the two credit scores, not the average. So if one partner has much better credit and financial resources than the other, it may be beneficial for that person to apply for the mortgage alone, even if that means securing a smaller loan.
Tax Benefits Are Better When Married
On the surface, the tax benefits available to homeowners do not differ between individual owners and married couples. However, there are some benefits to owning a home as a couple.
First, simplicity, according to Hunsaker. Filing a joint tax return means everything is combined on one form, making the filing and record-keeping process simpler.
Also, homeownership often is the factor that makes the taxpayer switch from using the standard deduction to taking the itemized deductions related to homeownership.
“For many taxpayers, itemizing results in a lower tax liability, especially if you’re eligible for additional deductions, such as charitable gifts,” Hunsaker said. “Home deductions like mortgage interest, property taxes, and capital gains exemptions are still available to unmarried couples, but will require extra effort to manage and report.”
It Requires Careful Financial Planning
“If you plan to buy a home with your partner before marriage, I advise you to think about the ‘what ifs’ in your relationship,” said Lauren Anastasio, Director of Financial Advice at the fintech company Stash, in an email to The Balance. For example:
- If you break up, what’s your plan for the home?
- If one of you becomes disabled and unable to work, can the other afford the home with their individual income?
- If
One of the partners unexpectedly passed away, will the other be able to stay in the property?
“How you respond to these questions will guide you in your financial planning needs,” said Anastasio. “You both will likely need to think about life and disability insurance regardless of how confident you are in your relationship’s ability to withstand the test of time.”
She added that it is important to have some transparent financial conversations with your partner before making a purchase. For example, you should know each other’s credit scores and how they might affect the cost of a mortgage if you apply jointly. You should be on the same page about how to share the costs of the purchase, from the down payment to closing costs.
Additionally, all cohabiting couples should have a shared household budget, according to Hansaker. There are many ways to manage this budget, but it should include all living expenses and clearly define who is responsible for what.
For example, you can create a joint account dedicated to major household expenses, regardless of whether you choose to keep funds separate or pool them together.
“It is extremely important for each partner to have a clear vision of which bills are being paid,” said Hansaker. “You do not want to find out the hard way that your partner has not been paying property taxes.”
In the end, there is no one perfect way to handle the financial management of owning a home with an unmarried partner. You just need to know that it can be more complicated if your finances are not already intertwined.
“There are many couples who are successful using vastly different methods,” said Anastasio. “What is important is to ensure that you are on the same page with your partner.”
Consider a Cohabitation Agreement
People often don’t expect serious relationships to end. But it certainly happens, whether the couple is married or not, and owning property together can complicate matters. That’s why it’s important to have some legal protection.
“Cohabitation agreements are a very good idea that can protect both parties,” said Hansaker. These contracts address the details of owning property and other assets together as unmarried couples. A cohabitation agreement covers who pays for what and how to divide property in the event the relationship ends.
Since a cohabitation agreement is meant to be a legally binding document, it may be helpful to consult an attorney when drafting it.
What Happens If You Get Married?
If you do eventually get married, you may wonder whether you’re in a
Source: https://www.thebalancemoney.com/what-to-know-about-buying-a-house-together-before-marriage-5272036
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