According to the National Association of Realtors, in 2020, 9% of home buyer couples were unmarried. While younger millennials made up 20% of these buyers, buying a home as partners is a cross generational trend. Though these co-mortgagors may have fewer legal protections in a breakup or unexpected death, there are ways to help prepare for worst case scenarios and to protect yourself in the long term.
While combining high incomes, excellent credit and low debt may boost the chances of mortgage approval, a less creditworthy borrower can hurt the application. The bank will always take the lower of the middle credit scores of the two borrowers which can impact the rate and how much the couple is able to borrow.
How a couple takes title to the property can also have unintended consequences. Title will stipulate each partners legal rights and ownership and determines what happens should one partner die. Sole ownership grants rights to one person, joint tenancy with right of survivorship is equal ownership automatically passing ownership to the other partner if one dies. Lastly, tenancy in common, may be used when one person contributes more as it represents an unequal interest in the property. Being versed on your state laws will help you determine what is best for the situation.
Experts suggest that when buying a home unmarried, that the buyers should put together a property agreement that outlines what each person paid for the down payment, repairs and any other types of fees or expenses. The contract should cover how to divide the property in the event of a breakup and possibly include buy-out provisions should the couple feel it best as this is at its core a business relationship.
Planning for the worst-case scenario in this unique situation can help reduce overall stress and put both parties in a better position in the future should the worst happen. There may be extra steps that both parties need to weigh with relation to pros and cons, but that is true of any financial decision. Is it the right decision to buy a home together? That question varies based on each situation and what is driving the purchase.
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by Andrew Augustyniak, Peoples Mortgage Co