Not Married But Want to Buy a Home? Here’s What You Need to Know
These days, it’s not uncommon for couples to decide not to officially tie the knot, even if they’re in a serious, committed relationship. If you’ve been living with your partner for several years, it’s only natural to think about taking the next step by buying a home together.
Your old fashioned parents might be trying to discourage you from this idea, but the process of buying a home as an unmarried couple isn’t much more complicated – or risky than buying a home as a married couple. As long as you’re ready to be upfront and honest with each other, you can make your dreams a reality.
Having Big Talks
In a lot of ways, buying a house together is an even bigger step than getting married. It’s a big financial commitment. You need to both be on the same page, and you need to have a shared vision for your future together.
First, you have to have a conversation about your finances, if you haven’t already. How much do you each make? How much debt do you each have? What are your credit scores? These are the types of things that are going to affect your ability to purchase a home, what type of home you can afford and how much you’ll be able to borrow for that home. You’ll also have to agree on things like a monthly budget. If one person is a saver and the other is a spender, it can cause some problems.
You also need to get serious about the future. Talk about whether you want kids and what trajectory your career is taking. You don’t want to buy a house together, only to find out that you have major differences that will result in a break-up.
The Financial Angle
Banks usually treat “common law” couples in a way that’s similar to married couples. They’ll combine your income and credit scores when making their decision. They’ll want both names on the mortgage to show the joint ownership of the home.
However, looking at the buying process from a financial angle is also a personal thing. For instance, if one person is putting down the entire down payment on the home, or contributing a significantly higher percentage of the mortgage payment, are you comfortable splitting ownership of the home 50-50? Each couple needs to work this out together.
The Legal Angle
Married couples have a slight advantage when it comes to ownership. They own equal portions of the home no matter how much each is contributing to the payments. Unmarried couples may need to take a few extra steps.
Think about how you want to put your names on the title. If you’re listed as “joint owners”, you each own half of the home. If you’d rather split things a different way, you’ll want to be listed as “tenants in common”, where you might specify a percentage of ownership based on contributions. If you’re taking this route, think carefully about the payment arrangements. For instance, when you buy the home, you might be splitting things 75-25 based on current income levels. If the person who’s paying less later gets a big pay raise and you start splitting the payments 60-40, that person won’t be happy with only owning 25% of the home.
You should also think about creating a “cohabitation agreement”. This is a legal document that details who is responsible for what in the new home. It might seem nitpicky to spell out all of the details, but it could protect you in the long run.
Life Insurance Needs
Married couples often have life insurance plans to protect their spouses in the case of death. Often, these plans include enough insurance to cover the cost of the home so that the surviving member of the couple doesn’t have to worry about the stress of paying for the home.
Unmarried couples – especially those without children – don’t always think about the importance of life insurance. If you’re buying a home together, it may be time to think about it.
When you buy a home together, you’re essentially saying that you plan to be together for a long time, if not forever. Things don’t always work out that way. You might not want to think about the possibility of breaking up, but it’s important to protect yourself because you won’t have the same protections as a married couple. This is why it’s so important to spell out who owns what portion of the home when you make the purchase.
As long as you’re thinking clearly about the details of buying a home together as an unmarried couple, you can find the happiness you’ve been looking for. Look for a financial advisor who is experienced with unmarried couples, and don’t be afraid to ask any questions you may have.