True Homes has sold many homes to couples who are unmarried, particularly first-time homebuyers. Here are some homebuying tips to consider before making the big decision to buy a home before the big wedding day.
Home Buyer Tips for Unmarried Couples: First, talk about your past.
Set aside romantic considerations for a while. It’s time to talk about your financial past, including debt levels and spending habits.
The amount of debt each of you carries can impact both the amount of mortgage loan you can qualify for and your credit score. Typically, lenders want your monthly debt payments (including housing debt) to be no more than 43% of your gross monthly income. If one of you carries a heavy debt load, it may make sense for just one of you to apply for the mortgage.
Whether both of your names are on the mortgage loan or not, if you’re planning to share the cost of housing, you’ll want to understand each other’s spending habits, too. Are both of you willing to commit to the cost of a mortgage payment, utilities and maintenance?
Home Buyer Tips for Unmarried Couples: Next, talk about your current situation.
For first-time buyers particularly, does a pre-marriage purchase make sense? Is it doable?
To answer these questions, look at your current income and savings. You’ll need to assure you have enough income to qualify for the loan and to pay for other costs associated with owning a home, including real estate taxes, insurance and homeowners association fees, if applicable. Furthermore, most homebuying tips recommend setting aside 1% of the home’s value each year to cover maintenance and repair costs.
Before you get into the home, though, you’ll likely need to front cash for things like a down payment, an appraisal, an inspection and closing costs. Do you have access to enough funds? How will you split these costs?
Also think about your living situations now and what you like and want for your new home. Are you hoping to buy in the same location? What are some home features you enjoy now that you want to find again? What are some you definitely want to leave behind?
Home Buyer Tips for Unmarried Couples: Finally, talk about your future.
Here’s where things can really get tough, but this part of the conversation is vital. The key is to acknowledge that you’re talking about worst case scenarios – not that you believe they will happen, but that you both understand it pays to plan for the unexpected.
In the case of a breakup or the death of one partner, what happens to the home and the contents if purchased jointly? Thinking through the answer to this question can inform optimal decisions for setting up the financing and ownership.
First, consider financing. In addition to determining the best scenario for accessing a favorable interest rate (dependent on credit score) and the size of loan available (based on income and debt), it pays to consider the what-ifs. If both people are on the mortgage, each is liable for the debt. If one person loses their job or leaves the relationship, will the other person be able to maintain payments, at least temporarily?
Ownership is handled through the title. It’s common to get the mortgage in one person’s name but agree to list co-owners on the deed. There are three ways to set forth ownership on the title. With sole ownership, one of you is the owner and is responsible financially. The owner can decide to sell it or borrow against it.
With joint tenancy, ownership is shared equally, and both owners decide whether to sell or borrow against the property. If one dies, ownership transfers to the other. This is the common arrangement in marriage.
The third option is tenancy in common. In this case, partners share ownership, but the shares are not necessarily equal. This helps if one person is contributing significantly more to the purchase of the home. Each can borrow against their share of the home, and if one person dies, they can bequeath their share to other heirs.
When choosing homeownership as an unmarried couple, it also helps to draw up a cohabitation agreement. The agreement can outline who is responsible for various costs associated with the home, how a change in the home’s value will be shared, and how property will be sold and/or divided in the event of a breakup. The agreement can also explore how tax advantages (such as mortgage interest deductions) will be shared.
Many True Homes first-time homebuyers have told us that talking through past, present and future homeownership considerations felt awkward at the time, but they grew through the process of following the homebuying tips, helping to ensure that the “breakup contingencies” were never needed. Instead, they moved into their new True Homes abode feeling confident that whatever came, they were where they want to be and with the perfect partner for them.