Explore your mortgage options
More and more couples are buying homes together before marriage. And a few interesting stats can help explain the growing trend.
Over the past 20 years, the number of unmarried couples living together has skyrocketed from 6 million to 17 million – which is about 7% of the adult population. Married couples make up fewer home sales, dropping from 62% in 2020 to 60% in 2021. Meanwhile, unmarried couples accounted for 9% of home purchases in 2020 and 2021.
Legally, an unmarried couple can buy a home together. But the risk is that it can lead to complications and legal issues if they break up.
If you’re an unmarried couple interested in buying a home together, before you toast to your mortgaged love nest, you should take some time to think through everything involved in purchasing a home.
There are questions you should ask – and get answers to – before anyone signs on a dotted line. We’ve made a list of those questions to help you buy a home with confidence – together.
Should You Sign a Cohabitation Property Agreement?
One of the best ways to protect yourself when you’re buying a house with your partner is to draft and sign a cohabitation property agreement. A cohabitation property agreement protects the legal rights of each partner in the event of a breakup. The agreement should be drafted by a real estate attorney who is familiar with local laws and will typically include:
- The type of ownership you’ll use for the title and deed to the property
- How (or if) you’ll split the down payment
- How you’ll share expenses and manage bills
- What happens to the property in the event of death or disability
- A plan for the home if you break up
No matter how rock-solid your relationship is, it’s a good idea to draft the agreement and draft it while you’re in a good place in your relationship. It can help prevent legal battles down the road and set you up for success as future homeowners.
Who Is Applying for the Mortgage?
The answer to this all-important question will impact the size of your mortgage and the loan’s terms, including the interest rate.
Unmarried couples typically decide one partner should apply for the mortgage. To increase their chances of approval and being offered more favorable loan terms, the partner with the stronger financials and higher credit score is usually the one who applies for the loan.
Another option is to apply for a mortgage together, which can potentially qualify you and your partner for a larger mortgage because you’re combining your purchasing power by combining your incomes. But this could be a risky option. If a lender bases their decision on the lower of the two credit scores, it may put your approval at risk and make it less likely that the lender will offer favorable loan terms.
Knowing what you can afford
Before you apply for a mortgage together, you’ll need to have an honest talk about each other’s finances. Discuss the factors your lender will probe to determine your creditworthiness, like your debt-to-income (DTI) ratio, income, employment status, assets, credit score and any accounts in collections. But you shouldn’t limit your talk to dollars and cents.
Talk about long-term goals – as a couple and as individuals. A transparent conversation about each other’s finances can help you decide how to apply for a mortgage and should help bolster your confidence in your joint home buying adventure.
Jump-start the conversation during a date night that includes online house hunting and exploring calculators: a mortgage calculator and a debt-to-income (DTI) calculator. You should know how much home you both can afford before you start falling in love with properties.
Make it fun and create a date-night playlist to vibe to while you’re enjoying video tours of prospective homes. If we can play DJ for a moment, we’d recommend adding: the classic “Our House” by Madness; maybe Ozzy Osbourne’s “Mama, I’m Coming Home”; or Stephanie Mills’ aptly named “Home.”
Your date night could be the perfect opportunity to learn more about what both of you need and want in a home.
Even if one partner’s name is on the mortgage, both your names can be on the title. After deciding who will apply for the mortgage, you’ll need to decide which ownership option works best for you.
Most unmarried couples opt for joint tenancy with rights of survivorship. Under the agreement, you and your partner will split ownership of the property 50/50. And if one of you dies, the surviving partner will automatically receive the deceased partner’s 50% share in the home.
Explore different title options for your home, including:
- Joint tenancy
- Sole ownership
- Tenancy in common
- Tenancy by entirety
- Community property
How Will You Split the Expenses?
Money usually ranks high (if not #1) on the top 10 list of things couples commonly argue over. Do yourselves a favor and decide sooner rather than later how you’ll split monthly expenses. Use your cohabitation property agreement to detail who is responsible for paying what every month. Your list can include:
- Property taxes
- Homeowners association fees
- Insurance premiums
- Maintenance costs
Who Gets the House if You Break Up?
The tough questions are usually the most important ones to tackle. And, we get it. Who wants to talk about breaking up when things are good? But what if things go bad? You’ll need a plan in case things don’t go as planned.
If an unmarried couple breaks up, they can sell the house and split the proceeds, one person can buy out the other’s share or they can keep the house and rent it out.
Each of these decisions will require a lot of thought and discussion. Whatever you settle on, be sure to include it in your no-nup.
What Happens if One of You Dies?
If one of you dies, depending on what you agreed on, the other partner may be able to stay in the house, or they may need to sell it. Your options (or lack of options) will depend on how you chose to hold the title.
If you chose joint tenancy with rights of survivorship, you automatically inherit the property. It’s a good option if you want to make sure the surviving partner can stay in the home.
If you chose tenancy in common, each of you owns a percentage of shares in the property. When a partner dies, their shares will go to the person named in their will. This option offers more flexibility, allowing you to determine what happens to your property shares after you die.
What Happens if You Get Married?
If you decide to tie the knot after tying up your finances in a home, you’ll need to take a few steps to reflect your new legal status, including updating your cohabitation agreement to indicate you are married.
You may also need to update your wills if you want the surviving spouse to inherit the property and make appropriate changes to any house-related paperwork. Finally, you’ll need to notify your mortgage lender and insurance carrier about the change in marital status.
House Before the Spouse
People are waiting longer to get married or deciding to forego the formality entirely. If you are an unmarried couple who wants to put the house before the marriage, you’ll need to set up a few rules early.
Before you start house shopping, you’ll need to discuss the “M” word – no, not marriage – your money. And your mortgage. Whatever you decide needs to be put in writing in a cohabitation property agreement. By taking these steps, you can feel confident that you’re both on the same page and prepared for anything that may disturb your domestic bliss.
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The Short Version
- Legally, an unmarried couple can buy a home together. But the risk is that it can lead to complications and legal issues if they break up
- If an unmarried couple breaks up, they can sell the house and split the proceeds, one person can buy out the other's share or they can keep the house and rent it out
- One of the best ways to protect yourself when you’re buying a house with your partner is to draft and sign a cohabitation property agreement
U.S. Census Bureau. “Unmarried Partners More Diverse than 20 Years Ago.” Retrieved August 2022 from www.census.gov/library/stories/2019/09/unmarried-partners-more-diverse-than-20-years-ago.html
National Association of REALTORS®. “2021 Home Buyers and Sellers Generational Trends Report.” Retrieved August 2022 from https://www.nar.realtor/sites/default/files/documents/2021-home-buyers-and-sellers-generational-trends-03-16-2021.pdf