In most cases, people buy a house either as an individual or jointly as a married couple. However, as more and more couples are living together for extended periods of time before tying the knot, there’s been an increase in the number of unmarried couples buying houses together. If you’re considering this as the next step in your relationship, it’s important that you do your research and proceed with a plan.
6 Tips for a Safe, Smooth Process
Whether you’re single, dating, or married, buying a house is a huge decision that you can’t take lightly. Not only is it a financial commitment, but it’s also a decision to plant your proverbial stake in the ground and enjoy a little stability.
For unmarried couples, there are some distinct challenges and issues that must be worked around before finalizing any legal transaction. We’re going to walk you through some of the things you need to do.
1. Be Transparent With Your Finances
One of the first things you’ll learn in this process is that you’re no longer viewed as an individual. Any positive or negative marks on your partner will affect you (and vice versa).
In order to make home ownership work as a couple, you have to be transparent with your finances. This means opening up about how much money you make, what you have in savings, and what your credit score is.
The latter aspect is very important. If one of you has a poor score, it could significantly impact your ability to obtain a mortgage. At the very least, it could drastically influence the interest rate you receive. If you find out that one person has a great credit score and the other person has a poor score, it might affect how you choose to title the property.
2. Sign a Housing “Prenup”
You never want to jinx a relationship or start an unnecessary argument by bringing up the possibility of a future split, but you have to address the elephant in the room. Most unmarried couples do eventually split up, and you both need to have a firm understanding of what will happen with the house in this unfortunate outcome.
The best thing you can do is meet with a real estate attorney and draft a co-ownership contract. This will essentially serve as a housing prenup. It will answer questions like: What happens to the property if you split up? What happens if one person becomes disabled or dies? Who pays for major bills and repairs? What happens if one person refuses to make payments?
By putting all of this information into a legally binding contract, you can control the outcome in situations like these (rather than letting the court system sort things out).
3. Consider All Title Options
There are multiple ways to title a property. It’s wise to consider the pros and cons of each titling method so that all parties are equally aware of the strengths and weaknesses. And while every state will have its own unique options, you’ll generally find the following choices:
- Sole ownership. With sole ownership, one person’s name is recorded on the deed. No matter what is agreed upon privately, this individual has all of the legal rights and responsibilities of ownership. This typically only makes sense when one partner has a drastically higher income or extremely low credit score. However, even in these situations, it’s risky. Should the relationship end, the person without a name on the title is entitled to nothing.
- Joint tenancy. With joint tenancy, each partner owns 50 percent of the property. Should one individual die, the other half of the share automatically transfers to the other party. The biggest risk with this setup comes in a breakup. If one person refuses to buy out the other (or neither party can feasibly do it), then the property must be liquidated and the proceeds divided evenly.
- Tenants in common. With this method, ownership can be divided into unequal For example, if you’re buying a $500,000 property and you put up 80 percent of the money, you can ensure yourself an 80-20 stake in the property.
Between these three methods, you should be able to find a title option that fits your situation and provides maximum protection.
4. Develop a Written Plan for Handling Costs
When you’re young and in love, it’s hard to anticipate there ever being any major problems or discrepancies over who pays what – but there will be. Instead of using a verbal agreement, it’s important that you both sit down and write out a plan for how costs will be handled on a monthly basis. Will costs be split down the middle? Will bills be divvied up by category? Who decides when it’s time to upgrade or renovate? Having these things in writing is very important.
5. Open a Joint Bank Account
If you’re going to be sharing in monthly costs – such as the mortgage payment, taxes, and bills – it’s smart to set up a joint bank account. You can then each schedule a monthly direct deposit into the account. This gives you a pool of money that can then be used to cover all expenses. And since it’s equally funded, nobody has to worry about paying more or less than their share.
6. Understand the Risks
Buying a house is a huge investment. And while it’s easy to be blinded by love, you need to remember that dating is a huge risk. For every successful relationship, there are likely half a dozen failed relationships. There’s certainly nothing wrong with buying a house with your significant other, but make sure you protect yourself.
Let Green Residential Help
When it comes to buying and selling homes in the Houston area, let Green Residential be your first call. In addition to having decades of experience in the real estate market, we’re known for prioritizing trust, transparency, and fairness above all else. For additional information on how we can help you, please contact us today!