Shopping for a house single? What to know earlier than signing the deed
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There are a growing number of unmarried couples buying a home together and, without proper planning, moving house can create future problems.
According to the National Association of Realtors, 9% of homebuyers were unmarried in 2020. While younger millennials between the ages of 22 and 30 make up 20% of unmarried buyers, buying real estate as partners is a cross-generational trend.
“It happens everywhere, and everyone has to be careful,” said Sheryl Dennis, estate planning attorney with Fields and Dennis LLP law firm in Wellesley, Massachusetts.
That’s because co-buyers enjoy less protection and may face legal problems if the relationship goes wrong or a partner dies unexpectedly, experts say.
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Applying for a mortgage
For most buyers, financing is the cornerstone of buying a home, and the process is more complicated for unmarried couples.
“For anyone buying a home, the first step is always pre-approval,” said Melissa Cohn, regional vice president of William Raveis Mortgage in New York, explaining how this move leads couples to consider applying for a joint mortgage, Property titles and other critical decisions to discuss.
While the combination of high income, great credit, and low debt can increase the chances of getting a mortgage approval, a less creditworthy borrower can hurt the application, she said.
“Banks will always take the bottom of the middle [credit] Grades for the unmarried couple. “
William Raveis Mortgage Regional Vice President
“Banks will always take the bottom of the middle [credit] Points for the unmarried couple, “Cohn said.” So if someone has a score below the optimal number required for the loan they are looking for, it could have an impact on the rate and size of the loan. “
Another important decision is the title of property, which establishes the legal rights and property of each partner and determines what happens to the house if a partner dies.
“The first question I ask is, ‘What if it all falls apart?'” Said Matthew Erskine, a Worcester, Massachusetts-based estate planning attorney for Erskine & Erskine.
While sole ownership gives one person rights, joint rent with survivors’ rights is equal property and automatically passes to the other owner when one partner dies.
The third choice, the joint tenancy, can be attractive when one partner contributes more as it represents an unequal interest in the property, Dennis said.
However, partners do not inherit each other’s share by default and may need to state preferences in a will to determine who will receive their share.
Other solutions for additional control could be to put the house in a trust or start a business, such as a limited liability company, Erskine said.
Of course, property laws vary from state to state, so it’s important to speak with a local estate planning attorney before making a title decision.
Regardless of the designation, experts also suggest a property contract that specifies how much each partner paid for the down payment, home repairs and other expenses.
The contract should also cover how the property will be divided in the event of a separation, including repurchase provisions, whichever the couple wants, Dennis said.
“It’s very much a business relationship,” added Erskine.
Plan for the “worst-case scenario”
When partners are considering buying a house together, they may wonder whether the decision is a good move, and the answer will vary depending on the situation.
“It’s really up to the individual and no one else,” said Douglas Boneparth, certified financial planner and president of Bone Fide Wealth in New York, explaining that the choice may or may not make sense depending on the couple’s goal.
While buying an unmarried property requires additional steps – like planning for the “worst-case scenario” – the partners have to weigh the pros and cons, as with any other financial decision, he said.
“It might be a little more complicated, but none of it is weird or weird or abnormal,” Boneparth said, and the trend could continue as couples’ attitudes towards marriage evolve.