Smart tips for couples who buy a house without first tying the knot

When it comes to purchasing a house, most people are not alone: 60% of homebuyers in the U.S. are married couples, according to the National Association of Realtors.

Still, the share of unmarried people, from romantic partners to housemates, who are buying a place together has risen to 9%, the real estate association found.

The incentive to buy a residential property grows as mortgage interest rates are low and home prices continue to climb. For some, marriage is put on hold, said Andrea Collins, a home insights expert with Hippo insurance.

Collins compares the $30,000 spent on the average pre-pandemic wedding to half the recommended 20% down payment on a $300,000 dwelling.

Maybe there's something to buying a tiny home after all.

In addition to romantic couples, home shoppers are also co-signing a deed with friends and family before they are priced out of the market.

“Waiting just a few more years to buy a home can turn the American dream into a far-off fantasy for most couples,” said Collins, citing that prices for residential properties in the U.S. have skyrocketed 113% over the last decade.

Unmarried couples who buy a house or condo without first tying the knot should agree on whose name will be on the mortgage and who can claim the tax deduction, said Collins.

Partners should also know how they can protect their investment, she added.

A recent study by Hippo found that 20% of respondents purchased a first-time home with a partner since March 2020. Most — 82% — reported making financial sacrifices to afford their new home.

They repaired their credit, reduced their spending, canceled vacations and moved in with someone to save on rent. They also may have relocated and found a new or second job to make more money.

And yet, one in three unmarried co-buyers said they were less prepared for homeownership than they expected to be.

Know before you sign

To be better prepared, Hippo offers five questions unmarried home shoppers should think about before taking the real estate plunge:

Will both names be on the mortgage? When applying for a mortgage, your income, credit score, work history, debt-to-income ratio and other financial factors will be considered to determine how much you’re able to borrow and your interest rate.

If one of your co-borrowers has student loans and other debt or a low credit score, you may want to leave him or her off the mortgage application.

This means there’s no getting around it: You and your partner will need to have a chat about finances before you begin house hunting.

If you both have similar financial backgrounds, applying as co-borrowers can be beneficial as both your incomes will be taken into account. Since a higher income level allows lenders to feel more protected, they’ll often offer a lower interest rate or higher borrowing limit to co-borrowers with steady incomes.

Who will hold the title? The title may not seem like a big deal compared to the mortgage, but given that it dictates how much of the asset everyone owns, it’s important to get right. Co-buyers can choose to have one person own the property outright or it can be split in any way. Often, the percentage of ownership reflects how much money each person is putting into the property.

In Oregon, two or more people can acquire title with or without “right of survivorship,” which means ownership passes to surviving joint owners in the event of a death rather than the heirs of the deceased.

Understanding these terms is key, as it determines how ownership of the home is delegated in the event one of the co-borrowers passes away.

Do we need a property agreement? A property agreement is a legally binding document that dictates the share of finances when it comes to paying the mortgage, utilities and other household expenses.

Most property agreements, especially those with couples who aren’t married, will include information on who will own the property in the event of a breakup. It’s also a good idea to include information on how the profits will be split when it comes time to sell.

A lawyer or mediator can help draft your property agreement. Hiring someone familiar with your situation will be helpful later if you need to make updates to the agreement after a breakup, wedding or the birth of a child.

Will we be living in the property full time? If you and your partner invest in property to lease to tenants or use as a second home, you are considered non-occupants. Non-occupant mortgages will likely require you to have a better credit score, put down a larger down payment and pay a higher interest rate due to the extra risk your lender is taking on.

Who will get the tax deduction? When itemizing deductions on tax forms, you can count the interest you’ve paid on your primary residence’s mortgage against your income, reducing the amount of tax.

Married couples likely file taxes jointly. But when you file separately from your co-buyer, only one of you will receive a 1098 mortgage interest statement from the lender. To also claim the deduction, you must have a legal ownership in the property, be listed on the mortgage and be paying the lending institution.

Hippo experts say it’s a good idea to consider which partner makes the most money, whose name is on the mortgage payments and who shoulders most of the financial burden when making this decision to see who benefits the most from this tax break.

Decide on a home

Once all the legal and financial questions have been answered, you can talk about the size, features and location of your future home. You might want to ask your partner:

  • What kind of neighborhood do you want to live in?
  • What sort of entertainment options, amenities or businesses do you want nearby?
  • Do you want to bring pets or kids into the home?
  • Are there any upgrades you would like to add?
  • What are your home buying deal breakers?
  • How many homes do you want to look at before making an offer?
  • How much savings should we have in case of emergencies?
  • Will we repair the home ourselves or hire professionals?
  • How long do you see us staying in this home before selling?
  • How will we split the profits when selling?

Continue the conversation once you’ve settled in. Understand who will be handling home maintenance, chores and lawn care.

 

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