Recently I went to dinner with friends and when the check came, the calculators came out. They split everything down to the penny. It wasn’t only their dinners but they used this method for groceries, home repairs, automobile, etc etc etc. It was incredibly annoying at dinner but not a bad idea.
It was a second marriage for both and both had children from previous marriages. So while doing research for this article I started thinking about them and their system. One of them died recently and I found out that even though they painstakingly followed this method for day to day activities, they did not have anything in writing for what happens after death or break up. It’s a little bit of a mess now.
The following tips for unmarried couples buying real estate together are for young and senior unmarried couples.
Know each other’s credit history
Unmarried couples buying real estate together means the banks will be looking at both individuals credit history in order to approve the loan. Your credit score can effect the down payment and interest rate. If both applicants are needed to qualify for the mortgage, it may be a matter of “credit fixing” before you venture out there to buy a home. If you can qualify with one person, make sure you use the one with the higher credit score.
Prenups for Unmarried Couples
The costs of the home do not have to be split 50/50. It may be that one of the parties has more assets. You may decide on a 75/25 split for various reasons. Prior to making that offer, unmarried couples should have discussed not only the down payment amount but also other costs that are associated with home ownership: HOA fees, taxes, maintenance, improvements, repairs. The house payment should be paid with one check so it is advisable to get a joint checking account for making the payments and also for a reserve. Spell it out in writing. Verbal agreements will not hold up in court.
How to take title
Listed here are the four most common ways to hold title to your home:
- Sole owner: The only time you’d want to put just one person on the title is if that person will retain 100% equity of the property—which might make sense if that 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 works well if ownership is 50/50. Many married couples opt for joint tenancy.
- Tenants in common: This stipulates that if one person dies, ownership will not automatically transfer to the other homeowner 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.
- Living trust Other than the modest cost of creating a living trust (usually less than $1000) and deeding real property into the living trust, there are no disadvantages.
These links will give additional information on the different ways of taking title, but consulting an attorney or discussing these methods with a title company are advisable. Resources: purchase pitfalls for unmarried couples; helping unmarried couples navigate buying real estate; millennials are better at home buying than you; Forbes millennial money; reasons for unmarried partners to own as joint tenants.