Mortgage before marriage? Read this first.
Americans are getting married later, and less often. The ways we meet, work, and live are changing. One thing that hasn’t changed: most people want to own a home. A 2018 study by Bank of America found that millennials prioritize homeownership over marriage, having kids, and traveling the world. So it comes as no surprise that more unmarried couples are buying a home together before tying the knot than ever before. If diamonds are forever, they’re also expensive and non-refundable. A home has upside potential and a liquid secondary market.
The challenge for unmarried couples is that they do not receive the same protections under the law afforded to married couples. This has implications for the purchase and for the co-ownership arrangement that follows. Many unmarried couples are unaware of this and how it can affect them.
Avoid these common mistakes.
Owning a home with a spouse carries risk. Married couples who divorce have the “benefit” of an established legal framework to guide how they split their assets and debt obligations. This is not the case for unmarried couples.
We’ve dealt with many unmarried couples. Generally, their respective financial and non-financial contributions to the home purchase are not equal. Either partner may have more cash for down payment and closing costs, a higher income, and/or a better credit score. The other partner may be able to contribute sweat equity in the form of renovating the kitchen. Sometimes, one or both of the partners receive financial support from friends or family to fund the purchase. Every situation is unique, but we commonly encounter three issues that can be resolved with proper planning and professional support.
Decide who will be named on the mortgage and on Title.
Depending on how Title is taken, it may also be possible to decide differing relative ownership interests. A loan officer or real estate agent may suggest that the individual with stronger financials assume sole responsibility for the mortgage (and potentially be the sole party listed on the deed). While this might make it easier for the lender to process the financing application or provide better terms, it is important to understand the implications. In such a case, the remaining partner would effectively be relegated to the status of renter. This isn’t a problem if the couple stays together or marries, but this could be problematic in the event of a break-up.
Determine how all expenses will be handled.
It’s important to discuss and agree upon who will be responsible for monthly housing expenses (mortgage P+I+T+I + HOA/condo fees), bills, repairs, upgrades, and other costs associated with the property. Unexpected costs can occur. Depending on relative ownership interests and the respective financial situations of each party, these costs can quickly become a flashpoint for disagreement. Deciding how all expenses will be handled ahead of time can help avoid disputes.
Define and codify a plan for what happens in the event of a break-up.
Breaking up is awful. Breaking up and going to court is worse. If there is a separation and no plan is in place, the result could be a protracted court battle. Legal disputes can be costly, stressful, and long. Planning for a break-up may not stoke romance, but if both partners are confident in the relationship, it can be viewed simply as an exercise in “best practice”.
Plan ahead, rest easy.
It’s common for couples to assume that they are on the same page and to assume that they are somehow immune from certain risks. But research shows that 10% of unmarried couples who live together break up after one year and 19% break up after three years. Clearly, many of these couples aren’t on the same page. If there is a split and the parting isn’t amicable, the risk of legal proceedings can be costly. Just to get the ball rolling will set one back $25,000 to $50,000, and the total cost of litigation can exceed the value of the home. Planning how to finance, structure, and safeguard the co-ownership arrangement will provide protection and peace of mind.
CoBuyers Starla & Robert
Starla and Robert share their motivations for using CoBuy to purchase a home together as an unmarried couple.
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