Question: My boyfriend and I would like to buy a small house. Will lenders have extra requirements for us because we’re not married?
Answer: According to the Consumer Financial Protection Bureau (CFPB), “shopping for a mortgage with someone else is the same regardless of whether you and the other person are married, registered domestic partners, unmarried partners, or just friends.
“Lenders cannot discriminate against you based on your marital status. However, there are different things to consider depending on who you are getting a mortgage with — particularly when it comes to the real estate title and the tax implications.”
While lenders cannot discriminate, they do have rules they can apply to joint borrowers. For example, they will generally use the lowest credit score between the co-buyers. They will also combine the incomes of all buyers when evaluating the application.
The real issues unmarried co-buyers are likely to face involve those “title and tax” concerns mentioned by the CFPB.
For instance, how much of the property is owned by each party? How will tax deductions for mortgage interest and property taxes be divided? What are the obligations of each party if you split up? If the downpayment is a gift for one co-borrower who gets the money if you break up?
These generally won’t be your favorite questions to ask with your boyfriend or girlfriend, but they’re important to know.
In the lender’s eyes you will be mortgage co-signers. That means each of you has a 100 percent obligation to repay the mortgage. One of you loses a job? Doesn’t matter, the payment must be made. One of you moves out? Still doesn’t matter.
If the payment isn’t made, both credit reports will get dinged.
If one of you is supposed to pay the mortgage and the payment isn’t made, both of you are responsible for the debt. For example, if you borrow $200,000, you are each responsible for the full repayment of the $200,000 and not some lesser amount.
“Keep in mind,” says the CFPB, “that property, marriage, and inheritance laws differ widely from state to state. Your rights and responsibilities also change depending on how the property is owned and titled.
“Not all states offer all kinds of titles or define them in the same way. Depending on the state, some types of titles may have different implications based on whether you are married or not. Some states, known as ‘community property states,’ have special rules for married couples.”
You and your co-buyer are best served by first consulting with a local real estate attorney or legal clinic before buying a home or searching for a mortgage.
You’ll want a formal ownership agreement which details how the title will be held and the ownership percentage of each party, among other things.
In addition, both parties should have a will and such other paperwork as you may need to assign property ownership in the event of a death or if someone cannot express their preferences.
Is this fun stuff? No, but if there is a dispute or other problem it will be a lot cheaper, faster, and easier to resolve problems with proper paperwork than without.