Buying a home with your partner is a tangible way to build a future together. But in some cases, that dream scenario can turn into a nightmare.
The fact is, taking on any form of significant financial responsibility with another person carries risk. That’s why both parties need to understand the potential pitfalls involved and strategies to avoid them. This becomes even more important when buying property as an unmarried couple, because you can’t expect the legal protections that come with marriage.
It may sound complicated and intimidating, but we’ll try to make things simple. Here’s what you should know about buying a house when you’re married vs. unmarried:
- Benefits of Buying a House With Your Partner
- Risks of Buying a House With Your Partner
- What To Do Before Buying a Home Together
- How To Split Housing Expenses With Your Partner
- What Happens If Something Goes Wrong?
- The Bottom Line on Buying a House Before Marriage
As housing prices continue to climb, many people may find it easier to buy a house with a partner instead of waiting for something they can afford on their own. This also allows buyers to start building equity in a property that will likely appreciate over time, and begin taking advantage of tax benefits like deducting mortgage interest and property taxes.
Plus, sharing housing expenses with someone could provide a greater sense of financial security. If one partner loses their job or gets furloughed, the other person can help pick up the slack.
When you’re in a stable relationship, it’s easy to assume that everything will be fine when you buy a home with your partner. But in case something doesn’t work out, you’ll want to understand the legal implications of buying a house together before marriage.
Casey Fleming, a branch manager at Fairway Independent Mortgage Corp. in Campbell, California, bought his first house with his then-girlfriend — without drawing up a legal agreement. When they broke up, he offered to buy out her half of the house, and she refused. She wanted to sell their home on the open market and split the proceeds.
Fleming went along with his ex-girlfriend’s plan — and he says they both ended up losing money. According to Fleming, that experience taught him the importance of having an agreement in place before buying a home with a partner. Even if you’re on the same page, it’s safer to visit a lawyer and draft a property agreement for unmarried couples beforehand.
“You think nothing could ever go wrong, and obviously as adults, we look back and know that’s not true,” Fleming says.
When you’re planning to purchase a house with a partner, consider taking the following steps to protect yourself.
Buying a home with a romantic partner is more complicated than purchasing property as a married couple. That’s why working with a real estate lawyer beforehand is important. They can help you draft a cohabitation agreement, which spells out how a couple will handle various scenarios — such as how you’ll divide the bills or what happens if the relationship ends.
Hiring a lawyer to draft an agreement can cost a few thousand dollars, according to Sarah D. Cline, a transactional attorney at Shulman Rogers, a law firm based in Potomac, Maryland. However, the total cost varies depending on the lawyer, the complexity of your situation and other factors. That may seem expensive — especially when you have to pay closing costs and moving expenses — but think of the cohabitation agreement as insurance. You might never need to use it, but you’ll be glad the agreement is there if things take a turn for the worse.
“The real risk is that if you don’t have an agreement on the front end, it’s going to be exponentially more expensive to fight about it in court,” Cline says.
You can find a real estate lawyer through your local bar association. The American Bar Association, for instance, provides a list of bar directories by state. A trusted family member, friend or co-worker could also provide a referral.
There are different ways you can own property with a partner while you’re not married. Again, make sure to consult with a lawyer to iron out the legal details before moving forward with a home purchase.
With sole ownership, there’s only one legal owner on the home’s deed, and this person has the right to sell the property or leave it to someone else if they die. Sole ownership might be an appealing option when one partner has bad credit that would affect the couple’s ability to get a mortgage, or for other reasons. However, it can be riskier for the partner who isn’t named on the deed. That’s why it’s recommended to work with a lawyer and draft an agreement that protects the property rights of unmarried couples.
Tenants in common share ownership of a home. However, the shares can be unequal — for example, you could own 60% of the property, while your partner owns 40%. Each owner may transfer or will their share to other parties, such as their parents or siblings. So, if one owner dies, then the surviving owner could end up sharing the house with their partner’s estate.
Joint tenancy with right of survivorship means both partners own the home in equal shares. In the event of one partner’s death, their ownership share automatically transfers to the surviving partner. Unlike tenants in common, joint tenants with right of survivorship won’t have to deal with another party if one partner dies.
There are many expenses related to buying and maintaining a house. Here are some things to consider when deciding how to split the costs.
Opening a joint bank account can help couples streamline and track payments for the mortgage, utilities, and other household-related expenses. The same account could also hold savings for things like emergency repairs if a home appliance breaks.
Some couples may choose to have both partners deposit an equal amount of money on a regular basis, while others may contribute money based on how much each partner earns. For example, if you take home $75,000 annually and your partner earns $50,000, you would pay for 60% of the expenses while your partner would contribute toward 40%.
There’s no right or wrong answer when deciding how to split expenses, so go with what makes sense for your relationship. However, keep in mind that either partner on the joint bank account can withdraw part or all of the funds without getting permission from the other person.
Getting a home inspection is an important step for any homebuyer to take. A home inspection looks for any major problems with the property, such as pests, issues with the house’s foundation, or faulty wiring. It helps prevent any unpleasant surprises after you and your partner have purchased the home, and could save you from paying expensive repair bills down the road.
A home inspection generally costs $300 to $1,000, according to the American Society of Home Inspectors, and you must pay for it upfront. You can split the fee with your partner or have one person cover the entire cost. If you’re taking turns handling homebuying expenses, make sure to keep track of who’s paying for what.
The size of your down payment depends on the requirements of your mortgage and how much you can afford to put down. A conventional loan has a minimum down payment of 3% for qualified first-time homebuyers, while a Federal Housing Administration loan requires a down payment of at least 3.5%. With mortgages backed by the U.S. Department of Agriculture or the Department of Veterans Affairs, no down payment is usually required.
In your cohabitation agreement, it’s important to note how much each person contributed to the down payment on the house. This may influence how the ownership of the property is split.
Closing costs are charged by the third parties handling your home purchase — including your real estate agent and lender — and reflect the fees involved in facilitating the transaction. Closing costs usually range from 2% to 5% of the purchase price, according to Freddie Mac. For example, if you buy a $200,000 home, then your closing costs would likely range from $4,000 to $10,000.
Closing costs can be substantial, so make sure to document how much each person is paying. You could have one partner pay for closing costs, split them equally, or choose a different way to divide the costs.
When you’re buying a home with a partner, one person could try to get a mortgage on their own, or both parties could apply for a joint mortgage together. With the latter option, the income and credit scores of both partners will be used to calculate the loan amount and interest rate. That means you might not qualify for the lowest interest rates if one partner has bad credit, so make sure you understand which option will result in the best loan terms.
With a joint mortgage, both partners are legally responsible for making the monthly payments. A late or missed payment will affect both borrowers’ credit. And if one partner can’t pay up, then the responsibility for the full mortgage payment falls to the other partner.
“You can’t just send in your half of the payment and tell the lender they have to go after the other person for their half,” Fleming says. “Legally, you’re both liable for the entire amount.”
One tip is to save between 1% and 3% of the purchase price for home repairs and maintenance on an annual basis. For example, if the home costs $200,000, then you and your partner should collectively save between $2,000 and $6,000 per year for these expenses. Make note of how much each person is contributing to repairs and maintenance.
Life can be impossible to predict, so it’s better to plan for the worst-case scenario than risk getting caught unprepared.
If you have a cohabitation agreement in place, then what happens after a breakup depends on the specifics of that agreement. For example, you both could have decided that the person who wants to stay in the home has the right to buy out the other party’s share.
Additionally, who gets the house depends on each person’s share of ownership. If one party has sole ownership, then the other party could pursue a lawsuit to try recouping the amount of their financial interest in the home — but it might be an expensive and drawn-out process, with no guarantee of success.
In the event of a combative split, it’s best to consult with a lawyer on your rights to the property before taking action.
In the event of your partner’s death, who gets the home depends on how ownership was determined. If you were tenants in common, then your partner’s share goes to their estate. If you were joint tenants with right of survivorship, then their portion of the property transfers to you. These are drastically different outcomes, so it can be helpful to have a lawyer explain your options in detail.
Pooling resources with a partner can help you achieve your homebuying dreams sooner, especially if you’re committed and prepared for the costs — and stress — of homeownership. But be sure to cover your bases and have a legal agreement in place. This is particularly important for unmarried couples. That way, you can go into the homebuying process with the knowledge that you’ll be protected no matter what happens in your relationship.