Buying a home as an unmarried couple may have been a rare phenomenon in previous generations, but it has become more common. In fact, according to the U.S. Census Bureau, there were 8.5 million unmarried couples living together as of 2018.
However, the rights of unmarried couples jointly purchasing a home can be a little tricky to navigate. Here are some things to consider before you sign on the dotted line.
Legal Agreements for Unmarried Couples
When married couples purchase a home together, their marital status automatically provides them with various legal protections if something goes wrong. For instance, should one spouse die, the ownership of the property will typically automatically revert to the surviving spouse. Similarly, if a married couple that owns a house together decides to get divorced, they can work out the details of what will happen to the house and the mortgage during the divorce process.
Buying a home as an unmarried couple may not offer the same protection or legal process if things go wrong. You'll likely have to work out an agreement ahead of time about what should happen if one partner dies or you decide to break up. For instance, putting a legal co-ownership agreement in place before you buy a home may help you and your unmarried partner protect yourselves. Consider speaking with a legal expert before you make any decisions.
Mortgage Considerations
In general, when couples are buying a house together, lenders use the weaker credit score to determine eligibility. For married couples, uneven credit scores between the partners may not be a problem when it comes to finding a mortgage with favorable terms. That's because the spouse with good credit may be able to qualify for a better loan under just their own name. The legal protections of marriage can protect the nonborrowing spouse, even if their name is not on the mortgage.
Unmarried couples also have the option of taking out a mortgage solely under the name of the partner with better credit. However, if the couple breaks up, the partner whose name is on the mortgage has sole legal responsibility for paying it. Even if both partners agreed to split costs evenly, there is no legal recourse to compel the nonborrowing partner to continue to pay a mortgage that is not under their name.
In addition, even if you remain happily coupled, the benefits and drawbacks of carrying the mortgage stay in the borrower's name. This means that only the borrower will be able to take advantage of a tax deduction for mortgage interest. And only the borrower's credit score will be negatively affected if the couple falls behind on mortgage payments.
Types of Co-Ownership for Unmarried Couples
There are several different ways a home can be titled for unmarried couples. Here are three of the common options:
Sole Ownership
This is when only one partner holds the title to the home. This may be the simplest option if you're qualifying for a mortgage based on one partner's credit score, but as previously mentioned, it could cause complications down the line. If the sole owner passes away without naming their partner as their heir, the surviving partner will most likely lose all rights to the house. Similarly, the partner who is not an owner will likely have no legal recourse if the owner decides to sell the home and keep the proceeds.
Tenancy in Common
This type of title is the most common for unmarried couples buying a home. Tenancy in common allows you to own unequal shares. For instance, if you are providing 30% of the down payment and mortgage payments, and your partner is providing 70%, then you can be tenants in common at 30% and 70% respectively. If you were to sell the home, each partner would receive a share of the proceeds based on their percentage of ownership. The downside of tenancy in common is that there is no automatic right to ownership of the property if one partner dies.
Joint Tenancy
With this type of title, partners share equal ownership of the property. Joint tenancy titling can be helpful for unmarried couples because it confers automatic right of survivorship. That is, if your partner dies, the property automatically passes to you without the need for probate.
Home Sweet Home
Buying a house as an unmarried couple can be a little more complex than simply living together or buying a house after you get married, and this only covers some of the considerations. Understanding your legal and financial options will help make the process easier, so you might want to seek advice from a legal expert.
