facebooktwittergoogle plus google plusReal Estate Blog YouTube My Escrow(800) 336-3629

HomeContact UsCommunity InfoNews & EventsEn Espanol

Ready to Buy a Home Together? 4 Scenarios to Talk Through with a Partner

Whether they’re not quite ready to tie the knot or would rather spend money on a down payment than a wedding, many couples are choosing to purchase a home with their partner prior to taking a trip down the aisle.

“Couples are deciding to buy a house rather than throw money away on rent, or they’re interested in the potential tax benefits of homeownership,” says Janen Ardia, Broker of Record for RE/MAX Heritage Properties in New Jersey. “All of those are very valid reasons.”

Yet she adds that there’s plenty for couples to think about before entering into a serious commitment like buying a home together, potentially even consulting a legal professional beforehand.

“That’s hard to do for someone with stars in their eyes because they think their love will last forever. And you hope it does! But just in case it doesn’t, it’s important to protect yourself,” Ardia says. “There are no defaults in place to protect unmarried couples, should a property need to be sold or the partnership ends. There are many scenarios that could affect the outcome.”

Below are four hypothetical scenarios of couples buying a home together without being married, and advice from real estate professionals for each situation.

HOMEBUYING COUPLE NO. 1: JENNA + MIKE, UNEQUAL FINANCIAL CONTRIBUTORS

Jenna has been talking about moving in with her boyfriend for a few months now. Instead of continuing to pay rent, she’d like to buy a condo. Jenna is able to contribute $10,000 to the down payment, and Mike is contributing $5,000.

Jenna and Mike’s first step? They may want to talk to a lawyer.

“We strongly recommend getting an attorney involved to draw up an agreement prior to buying a house together,” Ardia says. “It protects yourself, but also shows you really respect the other person in the partnership because it protects them as well.”

If they do decide to meet with an attorney, one thing Jenna and Mike will likely need to decide on is the type of tenancy they want to file for on the deed. The tenancy outlines the co-ownership agreement and what will happen when the property is sold, an interest in the property is transferred or sold, or if one of the owners dies.

“Tenants in Common” allows for different portions of ownership, which means the parties can decide to have their respective contribution reflected in their percentage of ownership in the property. “So if someone brings in 70 percent of the down payment and someone brings in 30 percent, proceeds from a post-breakup sale would be divided according to the percentage of ownership,” Ardia says.

“Joint Tenants with the Right of Survivorship” gives each buyer 50% ownership, with the other half automatically passing to the second owner if the first passes away (learn more about where this comes into play with Susan and Bill’s story, below).

For Jenna and Mike, this would mean that Jenna must split proceeds from a sale equally with Mike, despite putting more toward the down payment. Tenants in Common might be a better option.

HOMEBUYING COUPLE NO. 2: TOM + COREY, MISMATCHED INCOMES

After dating for a more than a year, the couple is ready for a place of their own. Tom makes significantly more than Corey, and the pair has discussed Tom contributing more to a monthly mortgage payment.

“Rarely do you have equal income for two partners who decide to buy a house together,” Ardia says. “Therefore, one person has been contributing a little bit more because their income is higher.”

In most states, it doesn’t matter how much (or little) each person pays toward a monthly mortgage payment. If both parties are named on the deed, it’s a 50/50 split if the couple breaks up and sells the house. The exception is if they outline different percentages of ownership when filing for Tenants in Common.

“You need to be careful, or that person who may not have contributed as much still walks away with half,” Ardia says.

Now let’s say the couple decides Tom will buy the townhome and the title will be in his name only. If Corey still contributes to the monthly mortgage payment, he likely would not be entitled to any of the equity he’s paid into the house should he decide to move out, the property is sold, the relationship ends or Tom dies.

HOMEBUYING COUPLE NO. 3: SUSAN + BILL, FROM EMPTY NEST TO LOVE NEST

Susan and Bill have been inseparable since they met at his retirement party a few years ago. Both divorced, they’re happy to spend their golden years in the dream mountain home they just purchased – without getting married.

“We’ve seen a tremendous upswing in older couples who are maybe divorced or widowed and really don’t want to get married again,” says Ardia. “They still may want to have an agreement in place.”

Without a will or pre-written agreement – and if the property was deeded as Tenants in Common – if Bill were to unexpectedly pass away, his percentage of ownership in the home would potentially transfer to his kids. If his children choose to sell the home, Susan could have to move out or buy the home from Bill’s heirs. Or worse, let’s say Bill doesn’t have kids and his portion of ownership passes to a distant relative. Susan’s fate may be up to a long-lost heir she’s never met.

What both Bill and Susan may want to consult with a lawyer about is creating a “Life Estate” for the surviving partner, in the case of the passing of the other. This allows the surviving partner to stay in the property ‘for life’ or until they choose to move out or marry someone else without the burden of anxious heirs wanting to sell. Their attorneys would clearly define who is responsible for the upkeep, the mortgage payments (if any), taxes, etc.

This is where a title deeded Joint Tenancy with a Right to Survivorship could apply. It means both Susan and Bill have a 50/50 stake in the home (including if the couple splits up and decides to sell). In the event of Bill’s death, Susan hypothetically inherits Bill’s stake in the home and would then have complete ownership.

There’s a downside to Joint Tenancy with a Right to Survivorship. Let’s say Susan and Bill break up, but Bill doesn’t want to sell the house. Because both parties still own the house 50/50, they may need to work out an arrangement for one party to acquire the other half. Both parties would potentially remain liable on any mortgage loan until their ownership interest is terminated by a deed. For example, if Bill lives in the home but stops paying the mortgage, the lender may come after Susan for payments.

HOMEBUYING COUPLE NO. 4: AMANDA + STEVE, PRE-WEDDING SHOPPERS

This engaged couple is eagerly planning their wedding, but they’ve found the right house within their budget – complete with the perfect backyard for their dog. Amanda is a self-employed freelance writer and Steve is a nurse at the local children’s hospital.

“Many self-employed people have multiple business and credit accounts open and may have a hard time demonstrating their income for loan approval. All of their debt may be weighing on the income of the other person,” say Mark Phillips, a loan originator with Motto Mortgage Alliance in Little Rock, Arkansas. “We might suggest that they submit a mortgage application with only one applicant on the loan. In many cases it might make qualifying for a loan easier.”

In addition to looking at a couple’s debt-to-income ratio, some loan programs – including many created for first-time homebuyers – have income limits. In this case, it may make sense to have one partner on the mortgage application and both on the title.

Phillips uses the example of a couple he recently helped where both had great credit scores and good jobs.

“Putting both of the borrowers on the loan application would have disqualified them from the loan program they wanted because adding their income together would have put them $30,000 over the max income limit,” Phillips says. “The couple decided to remove one of them from the loan application, but we did add that person to title. They both have ownership in the home – but only one is on the actual loan.”

All you need is love…and a mortgage?

Whatever a couple’s reasons for buying a home together may be, fortunately there may be a variety of options available when it comes to financing as well as options on how to take title to the home on the deed.

“Household dynamics have changed so much in the last 10 to 20 years,” Phillips says. “People wait to get married or they live together before getting married. People are taking different steps and doing things in a different order than they traditionally have in the past. There is not one way to do a loan. We may be able to make all sorts of loan scenarios work. This is great for consumers.”

Buying a home as a couple can really bring everything to the surface in a relationship. Couples will need to have frank discussions about debt, income and how much money they’re willing to spend each month. Some of these conversations can be difficult or even uncomfortable, but according to Shovkat Mamedov, Broker/Owner of RE/MAX 100 in New York City, going through the process before getting married can pay off.

“Finances are very important. It can bring down a lot of marriages,” Mamedov says. “If a couple can have these serious discussions and take on the responsibility of a house together, I think they’ve accomplished one of the biggest things in a relationship.”

And even after navigating legal agreements and the loan process, couples who buy a home together may still have to deal with everyday challenges of owning a home.

“When you’re renting, you’re not really taking care of all aspects of the house,” Mamedov says. “Once you own, you’re responsible for everything. That can be something simple or something big like the boiler breaking. You’ll see how your partner takes care of the house, and you’ll get to know each other better.”

Once a couple has weighed the pros and cons, and maybe talked to an attorney, there’s one person they can count on to help them find a home they’ll fall in love with: Their local RE/MAX agent.

“Couples choose to buy a home at different times in their commitment. Of course, we are there to help them at any time,” Ardia says.

Comments are closed.