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3 things to consider before buying a home as an unmarried couple
If you are an unmarried couple who’s putting marriage on the backburner or forgoing it altogether, buying a house together isn’t something you have to put off. Like married couples, owning a home together can be a rewarding experience.
Buying a home as an unmarried couple comes with its own set of risks. Before purchasing, there are a lot of questions you and your significant other need to talk about:
Who is applying for the mortgage and who will be on the title?
First, decide who will be applying for the mortgage. When looking over each other’s finances, determine who has the better credit score, debt-to-income ratio (DTI), employment status, and income. Even a small difference in credit score and DTI can save you and your partner thousands in interest.
The most common choices for deciding who will be responsible for the title and mortgage are:
- Tenants in common: Each co-owner is on the title and owns a percentage of the home.
- Joint tenancy: Each person has an equal share of the home.
- Sole ownership: One person holds the title as sole owner.
You can co-sign or borrow a mortgage loan with your partner but remember that a co-borrower is different from the co-signer. A co-borrower shares ownership of the property, and their name is also on the property. A co-signer doesn’t have interest in the property but is still responsible for paying off the mortgage.
What are the laws for unmarried couples?
Before applying for a home loan together, research laws in your state about how your arrangement could be classified. In some states, your decision to cohabitate could be considered a common-law marriage which will determine how the law views you when it comes to assets. For example, Missouri is not a common-law state, so you and your partner need to agree on how property will be handled in case of death or separation.
What should be included in the property agreement?
No one likes to think about breaking up, but for unmarried couples buying a home together, it should be discussed beforehand. As co-homeowners, your property agreement (or “no-nup”) should answer basic questions like:
- What happens to the property in the event of a breakup?
- Who pays for things like utilities and repairs?
- How will assets be divided?
Both of you should think about why you want to own a home together and are in agreement. Purchasing a home as an unmarried couple is a huge financial undertaking, so having a contractual agreement can protect both parties in case of separation.
Before signing anything, consult with a real estate attorney.