In recent years, it has become more common for young, unmarried couples or partners to buy homes together. Today’s home buyers realize that money is better spent on home ownership rather than rent or lavish weddings. But, before you “say yes to the address,” it’s important to know the pros and cons of purchasing a home out of wedlock.
One of the major reasons driving this trend in home ownership is that two buyers or borrowers can join their incomes and credit histories to buy a larger home with more living space. This became especially relevant during the pandemic when young couples were fleeing cities in search of more living space with room for home offices and eventual family expansion. Combining dual incomes for a larger pre-approved purchase can lead to a bigger space that might be more affordable for both parties.
The biggest risk for unmarried couples buying a home together is similar to that of married couples. If the relationship deteriorates, the investment is in jeopardy. However, unlike married couples, there are fewer statutes and guidelines that protect unmarried homeowners, so the assets will likely need to be split up. The conversation can be similar to, “who gets what, who is responsible for what?” Does one party buy the other party out and does either party have the ability to do that? If both partners signed any notes on the property, then they are both 100% responsible for the repayment and there is no quick and easy way to relieve one partner from that responsibility. Other issues can also arise even without the “break-up” – for example, if one person loses their job or is not carrying or contributing their share of the costs of home ownership.
Take the proper steps
When unmarried couples are purchasing property together, they should always sign a legally binding contract known as a Cohabitation Agreement or Cohabitation Property Agreement created by attorneys. Cohabitation Agreements are very similar to prenuptial agreements and are sometimes referred to as “No-Nups.” These contractual agreements address all aspects of the ownership, management, and potential division or sale of the property should the relationship end.
Decide how to purchase together
“Purchase together” can mean a number of things, but legally it would mean that both partners are on the title (or deed) and the mortgage to the property. One partner may not be on the note to the mortgage (if the lender or loan program allows for a non-borrowing partner), but both partners would own an interest in the property and therefore sign the mortgage. Generally, in Massachusetts, non-married partners can take title as “Tenants in Common” where each partner owns a specified interest in the property or as “Joint Tenants” where each party owns 100% of the whole jointly with their partner. Purchasing a property with a non-married partner and not being on the title is not advisable, even where a written agreement to the contrary is in place.
Joint ownership of property with a non-marital spouse is not a decision that should be jumped into or taken lightly, but when done correctly, it can impact the couple’s future for the better. With the increasing cost of real estate and the many potential pitfalls, these premarital property purchases can be extremely beneficial to the partners, so long as they are guided by knowledgeable mortgage and legal professionals to safeguard each individual’s interests.
Before committing to purchasing a property with a non-marital partner, each party should take a long, realistic look as to who they are partnering up with and the potential for the relationship to last. Each party should know each other’s finances including spending habits, debts, income, and whether both or one partner will obtain the financing. A joint discussion with a loan officer or mortgage professional to determine borrowing options would also be advisable at this point. Furthermore, knowing how you work together as a couple is critical, as home ownership will require many decisions (large and small) that will require cooperation and compromise, such as repairs, maintenance, upgrades, how much to spend, and who is responsible for what.
There are benefits to purchasing a property with a partner but you must be educated on the pros and cons of each situation before you make a large financial decision. It’s advised that you work with an experienced real estate professional who can share their expertise with you.