In today’s world, it is not uncommon for a couple to dive into the real estate market before tying the knot. In fact, 1 in 4 homeowners said they purchased a home with their partner before they were married. However, many continue living together without ever walking down the aisle. So before buying a home with your significant other, make sure not to make these common mistakes.
Not Discussing Your Credit History
Even if you’re applying for a loan together, you’re going to be assessed by the mortgage lender as individuals. Married couples are sized up individually, too, but since they’re hitched, they’ve likely had some in-depth money talks already. Unmarried couples may have put off this topic, but it’s time to ask each other some tough questions.
Your credit score, of course, is primarily a measure of how well you’ve paid off past debts; you can get a free estimate of this number at Credit Karma. Even if your credit score is amazing, if your partner’s is not, you as a couple could be seen as a lending liability. Lenders use the lower score of the two individuals when qualifying the couple for a loan. This could mean you’ll be required to make a higher down payment, or you get a worse interest rate, or you won’t even qualify for a loan at all.
One potential solution is to have only the person with better credit apply for the loan. However, you will have to forfeit including your partner’s salary in your assets, which might weaken your application. The good news is, the sooner you know your partner’s credit history, the sooner you will get to fixing any issues before they throw a wrench in your home-buying plans.
Planning Who Pays What
You can’t just assume you and your significant other are automatically in sync about who pays what. If you plan on staying unmarried it wouldn’t be a bad idea drawing up a legally bound contract that spells out the following parameters:
- What each person contributes to the down payment
- How much equity each person has
- What each party will pay, including the mortgage, taxes, utilities, and maintenance
Don’t assume you have to go 50-50 on everything either, many couples to 70-30 and even 80-20. Most importantly, the agreement should include a provision as to what happens in the event of a break-up. For example, which person has the right to buy the other one out? If that buyout happens, how many appraisals would need to determine the properties fair market value? Spelling these things out now will help you avoid disagreements later.
Not Considering Your Title Options
Sure, you may live in this home together, but there are actually three ways that couples can own a property.
- Sole Owner: The only time you would want to put just one person on the title is if that person will retain 100% equity of the property. However, if this person is exclusively shouldering the mortgage and other costs with owning the home.
- Joint Tenants: If one person dies, the other automatically inherits the other’s stake and owns the entire property. This makes sense if you are doing 50-50 because many married couples file jointly.
- Tenants in Common: This stipulates that if one person dies, ownership will not automatically transfer to the other homeowners unless that person is named in the will. Instead, the deceased owner’s heirs will inherit those shares. This can be a good choice if one or both partners have kids or family from a previous marriage to whom they want to pass on the property if they die.
Making House Payments Separately
While married home buyers often join bank accounts, many unmarried couples are hesitant to commingle their finances. That is a valid concern, but if you’re paying a mortgage and other home expenses together. Having a joint account you both contribute to can streamline your house payments immensely.