Home ownership can be a decades-long legal and financial obligation. Do it right, and you will reap all kinds of benefits. Including having a home in which to live, building equity, and a stronger credit score.
Do it wrong, and you could end up on the receiving end of a financial nightmare.
So, how should you approach home ownership with a partner despite not being married? That’s a good question.
Here are some pros and cons of joint ownership, along with important things to consider should you decide to buy a house together.
Pros of Joint Home Ownership
Day to day benefits
Owning a home with another person to whom you are not legally married, whether that person is a significant other, roommate, sibling, or another partner, does have its advantages.
The most basic advantage is the simple fact that it is always easier to afford a big, expensive thing with another person than to pay for something on your own. So, the temptation to go into joint ownership even when you might not be ready to take the plunge is a significant one.
When there are two of you, with two separate incomes, you will naturally have two salaries available to save for a down payment and to afford the monthly costs coming with homeownership. This will naturally make the monthly pain of paying for housing much easier.
Plus, joint home ownership guarantees a second person will be available to help shoulder the cost of utilities and other monthly expenses. You will also have someone with whom to split the chores.
Big picture considerations
Unmarried couples apply for mortgage financing as individuals, regardless of relationship status, whereas married couples apply as a unit. This means applying as unmarried individuals allows the person with the stronger credit to “purchase” the home on the strength of their credit. You can retitle the home later in both of your names.
It’s no secret home ownership is expensive. The costs don’t stop with the purchase price. Throughout your tenure as homeowners, you will have regular maintenance costs, repairs, replacement of appliances, taxes, insurance, and possibly homeowner’s association fees.
Having the peace of mind that comes with knowing there is another person literally invested in helping to keep up with those things can be a great reliever of stress and worry.
You will also have someone available to help with hiring professionals to complete those repairs. The time spent waiting for a repair person, contractor, or other professional to come to your home to provide estimates or complete work can be considerable. Having someone else invested in shouldering that burden is not to be underestimated.
It’s important not to forget the emotional security factor, as well. Even if you are not ready to get married or have made the choice not to marry but still wish to share a home, you will have a partner in home ownership with whom to share your life. It’s hard to put a price on that.
Cons of Buying A House Together
Of course, joining finances with another person, whether married or not, is no small thing. Home ownership is a commitment regardless of marital status. Conventional mortgages last for thirty years and can range from 10 years to 40 years.
Even if you choose to sell the home prior to paying off the mortgage, selling a home is a process that takes time. Thirty to ninety days is not uncommon to close on the sale of a home, and that’s after offer acceptance. Depending on the market, a house can take months to more than a year to sell.
When you own a home together but are not legally married, you leave yourself vulnerable to what will happen if the other person decides to walk away. The legal action necessary to hold the other person accountable for their share of the mortgage will not be cheap. And you’ll be stuck paying 100% of the utilities and other expenses in the meantime.
While tax laws are subject to change every year, as of now, if a married couple buys a house and files taxes together, there are tax benefits available. If two unmarried people buy a house together, only one will benefit from that tax break.
While having a second person available to share the costs of the utilities is a plus, the downside is there is a second person using the utilities. This is where it’s important to feel very confident in your living situation prior to entering into sharing a mortgage.
If one of you turns off the lights every time you leave the room and the other likes to leave them on all the time, what may seem like a small thing initially could turn into a much bigger thing as those monthly bills add up. And if you disagree on things like air conditioning or heat settings, they’ll add up even faster.
Perhaps the biggest concern when buying a house together is that a shared asset of this magnitude could lead to an offset in the balance of power in the personal relationship.
Does one of you earn more than the other making either of you unable to pay half of the expenses? Is one of you always on time with expenses and the other often late? Are you like most couples with differing ideas on how to handle money? Be careful with this situation, because it is a tricky one to navigate once you’re in the thick of it.
What to Consider Before Taking the Leap
Once you have considered the pros and cons of buying a home together as unmarried individuals, it’s time to look long and hard at the financials.
Consider the details
Will you both keep separate bank accounts and set up direct deposit for the mortgage payments? What about utilities, who will pay those? Will you each pay certain utilities, or will one of you write a check to the other to cover your share?
Some people choose to keep a joint bank account into which they deposit money to cover any and all house expenses. And keep the rest of their money separate.
Consider your credit score
Compare FICO scores with your partner. Are you in the same range? If so, you probably already have similar spending and saving habits, and similar attitudes towards money.
If your scores vary widely, it’s not necessarily cause for concern, but can be cause for discussion. Talk to one another and really listen to your partner’s thoughts on personal finance. Read up on what it means, financially speaking, to have a high or low score.
If you’ve never hired a lawyer before, do not fear. It’s not hard and doesn’t have to break the bank. Your employer may have an employee assistance plan with referrals for a free consultation with an attorney. Personal referrals are great, or your local realtor might have some referrals to suggest. A lawyer is helpful to walk you through the points to consider with regard to finances and without regard to emotion.
Consider a contract
While it may sound uncomfortable to have a contract with a significant other, consider this similar to a prenuptial agreement. You are planning for the best, but preparing for the worst. A contract will cover all eventualities, such as:
- What if one person wants to sell and the other doesn’t. How will you handle this? Is it possible to dissolve a real estate contract without cooperation of the other party?
- What happens if you break up (boo) or marry (yay). Some relationships end, some go the distance. It’s impossible to know which yours might be, but too financially risky not to plan for either scenario.
- What if one person dies? This can, and does, happen. If your significant other dies, his or her share of the home will not automatically pass to you. This is where a contract is essential.
Consider whose name will go on the title
When buying jointly, simply putting both names on the title is not enough to protect the survivor should one person die. Both names on the title make you “tenants in common.”
Which means ownership does not automatically transfer to the other person upon death. This can be tricky should your partner pass away, and you find yourself mired in legal matters regarding the home that you have bought, lived in, and worked to pay for.
Ensure you both are protected and consider becoming “tenants with right of survivorship”. This means the survivor will automatically inherit the property upon the other’s death. This also means the survivor will inherit the mortgage and all associated home expenses, so be prepared.
Should You Buy A House Together If Not Married?
As long as you view homeownership as the financial endeavor it is as opposed to an emotional one, you are on the right track. Going into a long-term transaction like buying a house deserves time, care, and thoughtful discussion.
If you’re both willing to do the homework. And work with professionals to ensure everything is in place to handle potential pitfalls. Then you can move forward confident buying a home together will likely be a good next step toward joint financial security.
Article written by:
Marie Morganelli, a freelance contract writer who writes regularly about finance, health and wellness, travel, and higher education. She also provides blog content for a number of small and medium-sized businesses.