A study done last year by Coldwell Banker Real Estate, titled “Marriage and Homebuying”, found that one in four couples between the ages of 18 and 34 bought a house together before they were married. The percentage for those aged 45 and older was much lower, however – only 14 percent.
There are many reasons compelling couples to buy houses before marriage:
- Mortgage rates are still low
- Mortgage interest can be deducted from income taxes
- The ability to build equity over time
- Rising rental costs
The factors combined are heavily influencing unmarried couples to buy now rather than later. Though purchasing a house may make sense for some couples, it is also one of the largest and most complex financial decisions you will make, and couples should carefully consider the decision to make sure their financial future is safe, no matter what ends up happening with the relationship.
Following are the 5 best tips for unmarried couples considering buying a house together:
1. Be transparent
Before you apply for that mortgage loan, it’s time to be honest about your financial situation. This means discussing salaries, savings, credit card debt, student loans, and any other you might have. It’s better to know now rather than be surprised, or surprise your significant other during the mortgage loan process when stresses and emotions are naturally running a little high anyway.
2. Get a prenup for your home
A standard real estate purchasing agreement isn’t enough to protect your interests; what you want to put in place is a partnership agreement, also known as a home-buying prenup. The home-buying prenup will address issues like who is contributing financially, how the mortgage will be paid, and what happens if you sell the house or the relationship dissolves. Defining these parameters will help ensure that any disputes can be settled without litigation, if the relationship sours.
3. Understand your home ownership options
Each state has its own rules regarding titling of homeownership, so you will want to be sure to check your individual state’s laws regarding an unmarried couple purchasing a house together, because the manner in which the property is titled affects the way the property can be transferred and can have tax consequences later on.
Usually, unmarried couples have 3 options for taking title; one person can hold title as the sole owner, or both can hold title either as joint tenants or as tenants in common. Dig into what these three options mean before making a final decision.
4. Keep track of your finances
Once you’ve purchased your home together and have moved in, make sure you keep written records of who pays for what, when it comes to home maintenance and any other money you might put into improving your home. Any partnership agreement you have will be useless unless you can prove who paid for what along the way.
5. Cover your bases
It is highly recommended that you consult with a real estate or estate planning attorney to make sure you have the proper protection and agreements in place before you buy your home together, and over time as well.
As your relationship changes, whether you end up marrying or splitting up, there might need to be changes that need to be made to your deed. Especially if you end up splitting up, as you may find yourself having to split the proceeds of your home sale long after the relationship ends.
Whether you are married or not, your home is likely your largest asset and a joy you share together. Creating a detailed plan for purchasing and maintaining that home can help ensure that you and your significant other are protected for as long as you and your mortgage last.