An annual survey released by the National Association of Realtors showed that 65 percent of homes purchased in 2014 were bought by married couples, 16 percent by single women, 9 percent by single men, and 8 percent by unmarried couples. These numbers have remained relatively unchanged over the years with the exception of a slight increase of unmarried couples purchasing a home. Some folks are deferring the wedding rings and instead setting their sights on a new key ring. All of the same benefits of purchasing a new home are true for unmarried couples, with a few precautions.
First and foremost, unmarried couples must be fully transparent with their finances. While entering into a large legally binding agreement, it will be crucial for each individual to disclose their financial history. This includes investments, unpaid tuition loans, bad credit scores, etc. If both parties will be on the loan, the lower credit score of the two will impact the overall loan package. How much each person makes and how much they feel comfortable spending will require honest discussion. While you are being open/honest, this may be a good time to discuss your long term thoughts about marriage. An immediate decision is not necessary, but it will be helpful to align your expectations before you embark home ownership.
A home buying prenuptial may be a wise document to put together before you sign away a down payment and take on the responsibility of a large debt. The agreement will dictate some of the specifics that could become misconstrued later. A real estate or family law attorney can help prepare the documents. Some helpful things to note are: how much each person will contribute to the down payment, how much each person pays towards the monthly mortgage, how monthly household expenses will be split, who will fund home maintenance repairs. Those considerations seem frivolous, but it’s always wise to prepare for some of those “what ifs.”
How the home will be titled is another safeguard to think through. There are essentially three different options of how an unmarried couple can take title to the property. The home can be titled solely in one person’s name. It can be titled jointly. Or it can be titled jointly as “tenants in common.”
The home being owned by just one individual is possibly the most dangerous of the “what if” categories. Although there may be joint interests in the property, there is only one person who is recognized as the owner. That means, that person could sell the property and take all the profit. They can also reap all the tax benefits. In the worst case scenario, that owner could pass away and the ownership could pass along towards the next of kin rather than the vested partner.
Joint tenancy can overcome that worse case scenario because it allows for the right of survivorship. In joint tenancy, everything is split down the middle. All of the benefits and all of the risks. In this scenario, if one were to pass away, the other homeowner can automatically inherit that owner’s share.
A “tenancy in common” is the most popular form of ownership. Each individual can own different and unequal percentages of the property. This is a helpful set up if one’s salary is significantly higher than the others. There is no right of survivorship, so if one were to pass away, that individual’s share would be given to whomever is designated in their will OR by default their heirs according to state law. That can get a little messy without a life estate provision in the deed.
Remember that a transaction beginning with the best of intentions can still turn messy. This is true of all large purchases but for those that are unmarried, there may need to be extra special consideration. Have honest conversations, get your document ducks in a row beforehand, and keep thorough financial records. It will help provide a peace of mind against all of the possible worst case scenarios. Professional advice from attorneys, accountants, realtors, and mortgage lenders is worthwhile to help navigate you through these waters. Do you have any other tips/tricks to pass along to help others? Comment below!