The number of unmarried couples happily living together in the United States is on the rise. According to research conducted by the National Association of Realtors, unmarried couples comprised 9% of the homebuying population in 2020. But buying a house alone can be a complicated enough process. Add in an additional buyer who isn’t a spouse, and the situation can get even stickier.
If you’re planning on buying a house with a significant other— or a friend or family member— there are a few things you and your purchase partner need to consider. Here’s what you need to know about ownership options, taking out a mortgage together, and drawing up a cohabitation agreement.
Decide How to Split the Home Beforehand
It’s important to have a plan going into the homebuying process. Both parties need to be in agreement on how they wish to hold the title to the home and split costs.
How to Hold Title to a Home
The first thing to consider is how you and your purchase partner will hold the title. Who holds the title and how the title is held determines what legal rights, if any, you will have to the property. While it may feel like it doesn’t affect much while you live there, in the event of a death, it could mean the difference between gaining ownership of the house or being forced to move out.
As an unmarried pair, you have three options:
- Sole ownership: With sole ownership, only one person is the legal owner. That person’s name is on the deed and the other person has no legal rights to the home.
- Joint tenancy: With joint tenancy, both parties jointly hold the title to real estate and have equal rights. Joint tenancy also comes with a right of survivorship. This means that if one party dies, their rights of ownership pass to the surviving tenant.
- Tenancy in common: With a tenancy in common title-holding, two people can hold the title to real estate jointly. Ownership percentages can be equal or unequal. This means that one party can own 40% of the financial interest in the house while the other party owns 60%. While each owner has the right to use and occupy the entire property, one party can sell their share without the consent of the other. There is also no automatic right of survivorship.
This is just a brief description of these methods of holding real property title. To fully understand how each would affect you and your purchase partner, it is best to consult with a real estate attorney. Keep in mind that your options may also be different depending on what state you live in, as laws can vary from state to state.
Getting a Mortgage When You’re Not Married
In the eyes of a lender, applying as unmarried borrowers isn’t much different than applying as a married couple. In both cases, you and your purchase partner will appear on the mortgage as co-applicants or co-borrowers. For most loans, anyone who wants to assume the legal and financial responsibility of a mortgage can be a co-borrower. Less concerned about your relationship, a lender wants to see both of your financial standings.
A lender will consider both applicants’:
- Credit score and history
- Income and other assets
One benefit to applying together is that it can be easier to get approved. For example, if one applicant has too much debt, bringing additional income can help your case. However, know that most lenders will use the lowest credit score between the two of you for qualification.
The downside to having a co-borrower is that both of you are on the hook for the mortgage payments. If one person decides to stop paying their share for whatever reason, the other party will have to make the entire payment.
Additionally, taking a co-borrower’s name off a mortgage isn’t always easy. It may require refinancing, which can be costly.
Taking Out a Solo Mortgage
Another option that you and your purchase partner agree to take out the mortgage in one person’s name. If one person has a credit score that prohibits them from qualifying for the mortgage, this could be a good option. Both parties’ names can be added to the title, but only one will be legally responsible for the mortgage.
The most important thing to keep in mind is that the person whose name is on the mortgage will be completely on the hook for a property— even if they only have partial ownership rights to it.
Create a Cohabitation Agreement
When you buy a house with someone, it may be hard to foresee anything going wrong. But the truth is that things happen. There’s always a chance that you’ll run into unforeseen circumstances like death, a breakup, job loss, or serious illness. A cohabitation agreement can provide a guideline for both parties, should you find yourself in one of these situations.
Within the cohabitation agreement, you may include:
- How the title is held.
- Ownership percentages. Define the ownership percentages for each person, especially if they are unequal.
- Payment responsibilities. Describe who will be paying what. This should include how the mortgage, property taxes, insurance, and HOA fees will be paid. You can even describe how you will split the responsibilities of utilities and other bills.
- What to do in the event of separation. If there is a breakup or a situation where one person wants to move out, what is the plan?
- What to do in other circumstances. There are circumstances other than separating that can throw a wrench in things. You may also want to outline what will occur in the event of illness, disability, income loss, etc.
- Dispute resolution. If a dispute arises, what will the procedure be to settle the issue?
Answering these questions early on ensures a smoother resolution if things do go wrong. To make sure you have everything covered, and to make the agreement legally binding, it’s best to have the agreement drawn up by a qualified attorney. A real estate attorney can also help you through the legal aspects of the entire homebuying journey.
Make Homebuying Better Together
Be prepared to do a little extra work if you’re buying a house when you’re not married. Purchasing a home is a lasting commitment, so it’s important to make sure that you and your purchase partner are on the same page on everything from ownership rights to mortgage payments and bills. And though you may not be able to imagine a time where you won’t be living in the house together, getting on the same page and drawing up a cohabitation agreement can save everyone a lot of trouble if things go awry.