Buying A Home As A Couple: What Changes, What Doesn't
According to a 2010 report by the National Association of Realtors, 58% of all homebuyers are married couples, 20% are single women, 12% are single men, 8% are unmarried couples and 1% falls into the "other" category. Unmarried couples often must decide between continuing to rent, having one partner buy a home, or entering into a home purchase together. Since buying a home is the largest single investment that most adults will ever make, it pays to consider the financial and legal details before buying a home as a couple. (For related reading, also take a look at Top 10 Tips For Buying Your First Home In 2011.)
TUTORIAL: How To Buy Your First Home
Following the recent financial crisis, many banks are now requiring larger down payments when purchasing a home, often as much as 20% of the home's value. Some banks also want the money for the down payment to have been earned by the homebuyer(s), and not come from other sources like a gift or inheritance. Depending on the situation, a couple buying a house together may be able to afford a larger down payment and be able to qualify for a better mortgage.
Some couples may decide to base a mortgage loan on only one income if one partner has poor credit or in case one person becomes unemployed, ill or loses a monthly income source. Having only one partner on the mortgage can sometimes lead to a better deal on the loan. However, the bank may require both homebuyers to be on the mortgage. In addition, the couple may want the security that comes from having both names on the mortgage and being jointly responsible for the debt.
The title to a home expresses the type of legal ownership and how the property is transferred in the event of death. Married couples may automatically acquire title as a tenancy by the entirety or as joint tenants with rights of survivorship, depending on the state where the home exists. Unmarried couples, however, will likely have to make this distinction in order to protect the rights of the surviving partner. The most common ways for unmarried couples to hold title are as joint tenants or as tenants in common. In the event that only one partner is listed on the mortgage or title, the other may have little rights in the event that the couple splits or if one partner dies.
TUTORIAL: Budgeting Basics
Home Buying Partnership Agreement
As an unmarried couple, it is important to put all financial agreements into writing. A qualified real estate lawyer can write a home buying partnership agreement (or other document) that clarifies how finances will be handled, including how much each partner will contribute to the down payment, monthly mortgage payments, and for repairs and maintenance.
The agreement should also identify what happens if the partners decide to go their separate ways. Things to consider include who would keep the home in the event of a split, how a listing agent would be selected, how to determine the asking price for the home, how proceeds from the sale of the home would be divided, and what to do if the home remains on the market for an extended period. A written agreement will help protect the rights of both partners.
The Bottom Line
Many couples today decide to purchase a home to avoid paying rent and to build equity. If one partner decides to purchase the home, it may benefit the couple to openly discuss the finances, outlining any contributions that the other partner will make towards the down payment, mortgage, utilities and upkeep of the property. If the partners choose to purchase a home together, a home buying partnership agreement can help protect the rights of both partners, and outline all the financial details involved in buying a home as a couple. (For additional reading, also check out Getting Help With Your Down Payment.)