There's nothing unusual about buying a house with a loved one or partner who is not actually your spouse: People do it all the time. Nevertheless, you'll face some challenges that married couples won't, and will need to make some important decisions in the short term in order to protect both of you over the long term.
Some of your advance planning has to do with the possibility that you'll eventually break up. That's probably the farthest thing from your mind right now. Besides, why should you worry any more than a married couple about breakup, given the high divorce rate? It's true, married couples may break up, too. But the law usually provides rules and structure to deal with their breakup, while you'll largely need to chart your own course.
Challenges in Taking Out a Mortgage Loan as an Unmarried Couple
With lending restrictions as tight as they've ever been, successfully obtaining a loan can be a challenge for anyone.
The good news is that you can take out a mortgage loan jointly, even if you're unmarried. Both of your credit ratings will be scrutinized, however, and the weaker one will be given a great deal of weight in the lender's decision regarding whether or not to approve the mortgage, and on what terms to do so.
If one of you has a much better credit rating than the other, the temptation will be for only that person to apply for the loan. Such a move is not, however, wise if both of you will be named on the property title as co-owners. If the relationship goes sour, and the mortgage holder was counting on the other person to help pay the mortgage, the mortgage holder's credit rating will soon be dragged down, as well. And in the meantime, only the mortgage holder will be able to take advantage of the mortgage interest deduction on his or her taxes.
Choosing Whose Name to Put on the House Deed
Assuming you will both be helping pay for the house, you probably want to put both names on the house deed (the legal document indicating ownership, which is filed in public records). To do anything else would leave one person unprotected in the event of a later breakup, shutting that person out of any benefits gained from price appreciation after the home is sold.
Of course, joint ownership isn't the only possibility. If one person will be paying a lot more into the property, the other one could be treated as a renter. Be sure to talk about this ahead of time, however, and agree on the exact terms of the arrangement.
Choosing What Form of Ownership to Enter on the Deed
The law forces you to make another important decision: in what legal manner you will take title to the home, also reflected on the house deed.
Most couples choose to share the house equally, in a 50/50, even split. This is called "joint tenancy" or, if you choose to have the survivor inherit the house in the event of the other's death, "joint tenancy with right of survivorship" (JTWROS). The JTWROS option allows the house to be transferred easily to the surviving person, without needing to go through probate.
Another option is for both individuals to take title as tenants in common. This allows the property to be owned in unequal shares, which might be appropriate if one individual in the couple will be putting more money into the purchase. In the event that one owner dies, his or her share will not necessarily go to the other; each person must decide who receives their share, and should write that decision in their will or estate planning documents. (If the person fails to write a will, the share will ordinarily go to the closest living relative, as set out in the intestacy laws of the state where the property is located.)
Creating a Written Co-Ownership Agreement
To make sure both halves of the couple understand the exact nature of the co-purchasing arrangement, and to plan for future issues or changes in the relationship, it's wise to create a written contract for you both to sign. Doing this right away is both sensible and avoids the possibility that you'll be arguing about it after a misunderstanding or dispute has arisen.
The contract should cover, for example:
- How ownership of the property will be shared (discussed above).
- What happens in the event of a breakup, including how each person will get money back from the house. If one person contributed more money to the purchase, that one should probably receive a larger amount back.
- Terms for a buyout if one person wants to keep the house after a breakup, including how the house's value will be appraised (for purposes of setting the buyout amount) and how long the other person has to pay off the purchase price.
- How you will divvy up the various initial and ongoing costs (including the down payment, purchase price, closing costs, insurance, taxes, and maintenance and repair bills). You might share these costs equally, or you might work out some other arrangement.
- How to handle a situation where both want to keep the house post-breakup.
An attorney can help you review your plan, and make sure that the property's deed and related documents correctly reflect your arrangement.
Questions for Your Attorney
- If I'm not married to my girlfriend, what's the safest way to purchase a house together so as to protect both our interests in the property?
- If my boyfriend and I split up after we buy a house, who gets to keep the house?
- If a couple put both their names on a property title, does it matter that one of them pays all of the house expenses?
- If an unmarried couple owns a house and one person dies without a will, are there exceptions to intestacy laws to keep that person's share of the house from going to the next of kin?