With high rents and historically-low mortgage rates, unmarried couples and friends are buying homes together. In fact, MONEY magazine polled 500 millennials about such purchases. 40% think it is a good idea for a couple to buy a home together before married, while 37% think the purchase should take place before the nuptials.
It doesn’t matter if they are platonic or romantic partners, there are no rules or laws against two or three unmarried people getting a mortgage together.
Get it in Ink
“It doesn’t matter if you re related or not, if you are just friends, or if it’s Aunt June and her niece buying the house together, you need to put everything in writing,” says Tina Del Casale, senior mortgage loan officer at Embrace Home Loans in the Washington, D.C. area.
For instance, if two friends buy a condo together and one of them loses their job within a year, what happens? That person without a job can’t help with the mortgage anymore. Or what if one of them dies? If it is not written down that the other person automatically gets the condo, then that deceased person’s family could sweep in and take over the half share of the condo. Every scenario must be decided upon when the couple is not married.
“I don’t need to be involved in any of those decisions. That’s not my job. But I do ask them to think about all of life’s circumstances, and what they would do in all those situations. They just need to write it down as a contract,” she says.
Luckily many of the partners she has helped get a loan have worked things out well, “But if it is all written down such as who is responsible for what, it just makes life a whole lot easier. If something happens – like one of them wants to get married to someone else – then who gets the condo or who has to get another loan to pay off the other one?” she said.
A lot of legal stuff can pop up. That’s why getting an attorney to prepare documents about all the details of your arrangements is a smart thing. That should include the percentage of a home’s equity each person is entitled to, especially if one of them has put more down payment or closing costs.
And what if one of the friends or couple has terrible credit? The lender will most likely only give a loan to the one with a stronger credit score and credit history. This means that with only one person applying for a loan, the amount the couple qualifies for is lower because it won’t include two incomes, Del Casale says.
Three Ways to Title a Property
This also means that only one person will be on the loan and the deed. There are three options for titling the property.
- One person can hold the title as the sole owner. But that’s not fair to the other person who will be sharing in paying the mortgage, taxes and maintenance.
- Both partners can hold the title as joint tenants, which gives each one equal shares. If one of the homeowners dies, the other homeowner inherits that owner’s share of the home, Del Casale says.
- Another form is called tenants in common. This means each of the partners owns a specified percentage of the property. For instance, if the one person puts down 75% of the down payment and is paying 75% of the mortgage, then the title should specify that.
“As far as the lender is concerned, they won’t allow anyone that isn’t a spouses to be on the title until after the closing,” she says. “In our area, they will have to go get the transfer of the title to the non-borrowing partner.”
However, that can be complicated and expensive to change a title by adding a name. Nolo.com, the consumer-friendly website about law, states that perhaps unmarried couples should have a will instead of a joint tenancy. If a partner wants the other one to get the house when they die, a will or living trust can state that desire.
“It’s just better to talk about all this stuff before you actually buy the house,” Del Casale says. “Money can tear apart relationships. Everything has to be spelled out.”