Many couples purchase a house with their partners before marriage, whether there’s a plan to end up marrying each other or simply continue cohabiting for a long time. Home-buying can be tough, but doing it before you tie the knot could be tougher.
Some financial challenges are unique in this scenario. While chances may be slim, a break up is possible. Needless to say, your mortgage won’t end when the relationship does.
Here are the five mistakes that unmarried couples make when purchasing a house together.
1. Making rash decisions
Some couples in a romantic relationship may fail to see that there can be two possibilities for the future. Although you may be compatible, it’s always best to talk about the worst case scenario.
There are also other factors to consider like careers, payments, renovations and others. Carefully run through all the possibilities in the future to spare you from the financial burden because of a choice you made when you thought of a “happy ever after.”
Here are a few considerations:
Length of your relationship.
The duration of the relationship never determines how it ends, but if you’ve only been together for a year, hold off buying a house. Remember that buying a property is a significant part of your life.
What happens in case of a break-up.
No one wants to talk about this, but if you’re considering to purchase a home together, there is an absolute need to do so.
There could be job transfers or career shifts that will mean geographical changes.
Your payment methods.
Determine how to finance a house, split the payments, and who contributes to what.
2. Not talking about credit scores or finances
When two people are married, there is a higher possibility of a shared account and financial discussions. However, many unmarried couples keep their bank accounts, loans, insurance, and bills separate.
It’s crucial to talk about your finances and your credit scores before purchasing a house because if one partner has a bad credit or subpar compared to the other, it could have different implications like a higher interest rate or down payment.
The renter vacancy is shifting, and although there may be a rent increase, it’s still comparably low compared to paying a mortgage.
3 Not having a clear-cut agreement of payments
Purchasing a property is more challenging than blending styles when you move in together. Financial matters can get complicated, and it’s never safe to assume that your partner and yourself are in total agreement of the payments.
Not everyone has a 50-50 split; some can do a 70-30, or even an 80-20. You’ll have to be clear on this area with specifics on:
- Each person’s contribution to the down payment and monthly payments
- How expenses for maintenance and utilities will be paid
- How much equity each partner will have
4. Not putting the agreement in writing
Putting your agreement in writing will save you from a lot of trouble in the future. Seek professional help and have a contract drafted with the full details of the arrangement, payments, and what happens in case of a break-up.
Other information you want to include in the written document:
- The name on the deed, or if it’s going to be both
- The payment responsibilities of each partner
- What happens if one can’t pay
- How the property will be divided when you decide to split up
5. Not choosing the title carefully
You and your significant other must agree on the home ownership. It’s crucial that you think this through with utmost care because it will determine equity and other legalities. Whatever type of title you opt for, the specifics should also be on the contract mentioned previously.
The three types of titles are:
The ownership is only under one name and is the only legal owner who can sell or bequeath the property. This makes sense if only one individual is shouldering 100% of the cost.
You and your partner has equal shares in equity, which is ideal if you are both on a 50-50 contribution. If one of the owners dies, the other inherits the equity automatically, making this route common with married couples. An advantage for joint tenancy is that neither of you can sell the house without the other’s permission.
Tenants in Common.
The most common way unmarried couples go for because it allows for unequal shares and in case of decease, the owner can bequeath it to whomever they wish.
Some financial advisors wouldn’t recommend buying a house as an unmarried couple simply because it’s more complicated. However, if both of you decided to take this step, it’s crucial that you don’t fall into committing the common mistakes an unmarried couple could do.
It’s wonderful to be able to buy a home, but make sure that this is something you carefully think of so it won’t be a financial and emotional burden in the future.