Buying a Home with Someone You’re Not Married To

How Buying a House as an Unmarried Couple Works

Buying a house as an unmarried couple is similar to the process for a married couple in some ways. You and your co-borrower will typically apply for a mortgage together by submitting a joint application. You will need to save up a down payment as well, which you can do together.

Your lender will then review your application and consider your combined income, credit scores, debt-to-income ratio, and other assets when deciding whether to approve both of you.

If you apply together, are approved together, and both sign the promissory note, then your lender will view you as having the same legal obligation to repay the loan in full, regardless of what you may have agreed to privately.

Key Considerations for Unmarried Couples Buying a House

There are a few key factors unmarried couples must think about when buying a house together in order to protect their finances and future.

Determine Your Ownership Structure

The first key thing to clarify is your ownership structure of the home. Being a legal owner of the house provides you with critical legal protection. If you put money towards a home you are not the legal owner of, and you are not married, you may have few options to recover your invested funds if the relationship ends.

Here are some of the different kinds of ownership arrangements you can consider.

• Sole ownership: This means only one person is the legal owner of the house. If two people buy a house together and one is the sole owner, the other has few, if any, legal rights in the eyes of the law.
• Joint tenancy: Joint tenancy means that you purchase a home together, and you both have an ownership stake in it. When you purchase a property as joint tenants with right of survivorship, then when the first person dies, the property ownership automatically transfers to the joint tenant without having to go through probate.
• Tenancy in common: This means each owner has a separate legal ownership share of the property. In this case, each person owns a specific percentage of the property and can sell their interest in it or leave it to whomever they like when they pass away. When a partner dies, a tenants-in-common ownership structure creates a risk for the surviving tenant of co-owning the home with someone they wouldn't have chosen.
• Trust: When you purchase a home in trust, the trust owns the property and not the individuals.

Create a Cohabitation Agreement

One reason buying a home outside marriage is challenging is that there is no clear legal framework defining your rights or responsibilities.

The state has created laws governing marriage, but you will need to create your own private rules governing your rights, obligations, and duties with a shared home.

You can work with a real estate attorney to create a cohabitation agreement that explains what percentage of the shared home each person owns, what each person's responsibilities are regarding the mortgage payment, utilities, and home improvements, and what your exit plans are if the relationship dissolves.

Decide How You’ll Split Costs

Buying a home comes with many costs, including closing costs, a mortgage payment, property taxes, insurance, maintenance and upkeep expenses, and a down payment. You should decide how these costs will be shared to avoid unpleasant surprises or a potential breakdown in your relationship if you don't agree in advance.

Plan for the Unexpected

Many different things can happen in your life that can change your relationship with your co-owner or with the home itself. You should always be prepared for potential future events. For example, have a plan for what happens to the home in case of a breakup, or if one person wants to sell and the other doesn't. Consider and agree upon a resolution for any potential scenarios.

Pros and Cons of Buying a House with an Unmarried Partner

There are both advantages and disadvantages to buying a house with an unmarried partner. Here are some benefits and downsides.

Benefits of Buying a Home with an Unmarried Partner

The benefits of buying a home with an unmarried partner include the following.

• Increased buying power: With two incomes instead of one, you may be able to spend more to get a better home.
• Shared costs. Economies of scale mean that two people living together in a shared home often spend much less than single individuals living separately. You can share expenses (such as utilities) and save money when you buy a home with an unmarried partner.
• Easier entry into competitive housing markets: It can be difficult to save up a down payment and afford a mortgage in a competitive market, but buying with another person allows you to pool resources to make purchasing a home more affordable.

Potential Risks of Buying a Home with an Unmarried Partner

There are also some risks of buying a home with an unmarried partner.

• Disagreements over finances or exit strategy: If one person wants to sell or there's no clear agreement on how costs will be shared, conflict could arise.
• Unequal contributions: One person may contribute more than the other, without any legal framework to ensure a corresponding benefit.
• Legal complexity if the relationship changes: When the relationship changes, there is not always a clear formalized process to ensure that a fair determination is made on what happens to a home.
• Tax implications: Since you are not married joint filers, this can create complex tax issues, including conflict over who claims homeowner deductions.

It's important to consider the risks to your finances of purchasing a home with someone you aren't married to.

Mortgage Loans for Unmarried Buyers: Know Your Options

Unmarried home buyers can take out most standard types of available mortgage loans if they meet eligibility requirements. Here are some examples of loan options unmarried buyers could be eligible for.

• Conventional loans: A conventional loan is not backed by the government. Many lenders offer conventional loans, so unmarried couples buying a home together have many choices.
• FHA loans: An FHA loan is backed by the Federal Housing Administration. Qualifying requirements can be more relaxed regarding the down payment, credit, and income required.
• VA Loans: A VA loan is a loan option for active-duty military and their families. If one partner qualifies, it can be easier to get an affordable loan with low or no down payment required.

Steps To Buying a House with Someone You’re Not Married To

If you are considering buying a house with someone you're not married to, here are the steps to take.

1. Discuss finances openly: Make sure you're on the same page about what you can afford.
2. Check credit and budget: This will allow you to determine what type of home loan you can qualify for and for what amount.
3. Get prequalified: Getting prequalified involves your lender reviewing some of your financial information. It also helps you get an offer approved on a home.
4. Choose ownership structure: You will need to decide how to title the property because this determines how you will share legal ownership.
5. Draft a legal agreement: You should create a cohabitation agreement that considers any potential problems that could arise.
6. Find a home and apply for a mortgage: When you are confident you can successfully own a shared home with a non-spouse, move forward with the process.

These steps allow you to get on the same page financially with your co-buyer, as well as prepare you for your home purchase.

Final Thoughts: Is Buying a House Together the Right Move?

Buying a house with someone besides your spouse can have advantages, including making ownership more affordable. There are downsides, like potential legal risks of co-owning a home outside marriage, but you can use legal agreements to limit them.

Reach out to Freedom Mortgage today to find out how to buy a home with someone besides your spouse and get prequalified for your new home.