Homeownership, whether you’re married or not, can be a decades-long legal and financial obligation.
Do it right, and you will reap all kinds of benefits, including having a home in which to live, building equity, and a stronger credit score
Do it wrong, and you could end up on the receiving end of a financial nightmare.
So, how should you approach buying a house with a partner or another party despite not being married?
There are several things for unmarried individuals to think through before buying a house, such as:
-Who applies for the mortgage?
-How shall ownership be split (50/50, 60/40)?
-How will the property be titled to protect both parties?
-Are costs split evenly or by percentage?
-Repairs and improvements?
-What happens if one wants out, needs out, or if one of you dies?
-Pros of Joint Home Ownership
Owning a home with another person to whom you are not legally married, whether that person is a significant other, roommate, sibling, or another partner, does have its advantages. The most basic advantage is a simple fact: it’s always easier to afford a big, expensive thing with another person than to pay for something on your own. When there are two of you, with two separate incomes, you will naturally have two salaries available to save for a down payment and to afford the monthly costs coming with homeownership.
This will usually make the monthly pain of paying for housing much more manageable. Plus, joint homeownership guarantees a second person will be available to help shoulder the cost of utilities and other monthly expenses. You will also have someone with whom to split the chores. While you don’t need to be married to buy a house together, it’s important to note that unmarried persons apply for mortgage financing as individuals, regardless of relationship status.
In contrast, married couples can apply for a mortgage as a unit. This means applying as unmarried individuals allow the person with the stronger credit to “purchase” the home on the strength of their credit. You can retitle the home later in both of your names once married.
It’s no secret homeownership is expensive. The costs don’t stop with the purchase price.
Throughout your tenure as homeowners, you will have:
-regular maintenance costs
-repairs and remodelling expenses
-replacement of appliances
-possibly condo fees
The peace of mind that comes with knowing there’s another person literally invested in helping to keep up with those things, can be a great reliever of stress and worry.
You will also have someone available to help with hiring professionals to complete those repairs.
The time spent waiting for a repair person, contractor, or other professional to come to your home to provide estimates or complete work can be considerable.
Having someone else invested in shouldering the burden is not to be underestimated.
It’s important not to forget the emotional security factor, as well.
Even if you’re not ready for marriage or have made a choice not to marry but still wish to share a home, you’ll have a partner in homeownership with whom to share your life.
It’s hard to put a price on that.
Potential Cons of Buying A House Together
Of course, joining finances with another person, whether married or not, is no small thing.
Owning a home is a commitment, regardless of marital status.
A typical conventional mortgage is for 25 years but can range from 10 years to 40 years.
Even if you choose to sell the home before paying off the mortgage, selling a home is a process that takes time. Thirty to ninety days is not uncommon to close on the sale of a home, and that’s after offer acceptance. Depending on the market, a house can take months to more than a year to sell.
When you buy a home together before marriage, you leave yourself vulnerable to what will happen if the other person decides to walk away. The legal action necessary to hold the other person accountable for their share of the mortgage will not be cheap. And you’ll be stuck paying 100% of the utilities and other expenses in the meantime.
While having a second person available to share the costs of the utilities is a plus, the downside is a second person is using the utilities. This is where it’s important to feel very confident in your relationship and living situation before entering into sharing a mortgage. If one of you turns off the lights every time you leave the room, and the other likes to leave them on continuously, what may seem like a small issue initially could turn into a much bigger thing as those monthly bills add up.
And if you disagree on things like air conditioning or heat settings, they’ll add up even faster.
Perhaps the biggest concern when buying a house as an unmarried couple is sharing an asset of this magnitude could lead to an offset in the balance of power in the personal relationship.
Does one of you earn more than the other, making either of you unable to pay half of the expenses?
Is one of you always on time with expenses and the other often late?
Does one of you stick to a budget, while the other spends more?
Are you like most couples with differing ideas on how to manage money?
Be careful with this situation, because it is a tricky one to navigate once you’re in the thick of it
What to Consider Before Taking the Leap
Once you’ve considered the pros and cons of buying a home together as unmarried individuals, it’s time to look long and hard at the financials.
Consider the Details
Will you both keep separate bank accounts and set up a direct deposit for the mortgage payments?
What about utilities, who will pay those? Will you each pay certain utilities, or will one of you write a cheque to the other to cover your share?
Some people choose to keep a joint bank account into which they deposit money to cover any and all house expenses. And keep the rest of their money separate
Consider Your Credit Score
Compare credit scores with your partner. Are you in the same range? If so, you probably already have similar spending and saving habits, and related attitudes towards money.
If your scores vary widely, it does not necessarily cause concern but can be cause for discussion. Talk to one another and really listen to your partner’s thoughts on personal finance.
Consider a Real Estate Lawyer
If you’ve never hired a lawyer before, do not fear. It’s not hard and doesn’t have to break the bank.
Your employer may have an employee assistance plan with referrals for a free consultation with an attorney as part of your benefits package.
Personal referrals are great, or your local realtor might have some referrals to suggest. A lawyer helps walk you through the points to consider concerning finances, without regard to emotion.
Consider a Contract While it may sound uncomfortable to have a contract with a significant other, sibling or best friend, consider this similar to a prenuptial agreement or business arrangement.
You’re planning for the best, but preparing for the worst.
A contract will cover all eventualities, such as:
-What if one person wants to sell and the other doesn’t. How will you handle this? Is it possible to dissolve a real estate contract without the cooperation of the other party?
-What happens if you break up or marry. Some relationships end; some go the distance. It’s impossible to know which yours might be, but too financially risky not to plan for either scenario.
-What if one person dies? This can and does happen. If your significant other dies, his or her share of the home will not automatically pass to you. This is where a contract is essential.
Consider Whose Name Will go on the Title When buying jointly, simply putting both names on the title is not enough to protect the survivor should one person die.
Both names on the title make you “tenants in common” Which means ownership does not automatically transfer to the other person upon death.
This can be tricky should your partner pass away, and you find yourself mired in legal matters regarding the home you have bought, lived in, and worked to pay for.
Ensure you both are protected and consider becoming “joint tenants” or “tenants with the right of survivorship.” This means the survivor will automatically inherit the property upon the other’s death.
This also means the survivor will inherit the mortgage and all associated home expenses, so be prepared.
Should You Buy a House With Your Partner When not Married?
You’re on the right track, as long as you view homeownership as the financial endeavour it is, as opposed to an emotional one.
Going into a long-term transaction like buying a house, deserves time, care, and thoughtful discussion.
If you’re both willing to do the homework and consult professionals to ensure everything is in place to handle potential pitfalls, then you can move forward – confident buying a home together will likely be a good next step toward joint financial security.