Love and mortgage are the new lyrics to the old song “Love and Marriage.” Rather than falling in love, getting married and then buying a house, the new natural order of things is increasingly becoming falling in love, buying a house and then, down the road, getting married. The TD Bank found in its latest study that one in four couples is doing just that.
Every couple, unmarried or married, wants to believe that their loving relationship with their partner is a forever relationship. However, buying a house together has nothing to do with love. It has to do with business. Therefore, each partner in the relationship needs to protect themselves and their investment in their business decision to buy a house together.
Ray Rodriguez, the New York head of sales for TD Bank, says that both partners, married and unmarried, in the couple “…need to look at the worst case scenario… and that worst case scenario is that you just might break up.”
Unmarried couples have home purchasing pitfalls that are different than married couples. As an agent, working with this increasing segment of homebuyers, here are the common missteps that you may witness your couple make. Learn to professionally and tactfully highlight these with them so that buying a home can truly be a ‘happily ever after’ experience.
- Not discussing credit histories with each other. Warn them that as unmarried individuals, lenders will evaluate their credit worthiness as individuals, not as a couple. If one person’s credit score is great and the other person’s credit score is not, lenders “…use the lower score of the two individuals when qualifying the couple for a loan…this could mean that you’d be required to make a higher down payment or you could get a worse interest rate or it could mean that you wouldn’t qualify…at all,” says Rodriguez.
- Not planning in advance who pays for what and how much. Counsel them that unmarried couples do not have to pay for everything equally on a 50:50 basis. Advise them that having a legally binding contract written by a real estate attorney that stipulates who pays for what and how much is necessary. It’s crucial to know before purchasing a home together what each person contributes to the down payment, how much equity each person has, and how much each person contributes to mortgage payments, taxes, utilities, insurance, maintenance costs, etc. It’s also crucial to know what happens if the couple breaks up. Spell out in writing such things as who has the right to buy out the other and how many appraisals will be needed to determine the fair market value of the house.
- Not considering Title options. If an individual’s name is not on the Title of the house, that individual has no home ownership rights. The usual three title options are Sole Owner (that partner owns 100% of the equity in the property), Joint Tenants (if one partner dies, the other partner whose name is on the property Title inherits the deceased partner’s stake in the property and then owns the entire property. Many married couple opt for Joint Tenancy on the Title), and Tenants in Common (the heirs of the deceased owner inherit those shares in the property unless the living partner is named in the deceased partner’s will.)
- Not making house payments jointly. Oftentimes, unmarried couples are reticent about merging their finances however, it’s not possible to write two separate checks for a monthly mortgage payment. A solution for this reality is to open a joint account designated for house payments. Each partner would contribute money from their separate accounts to pay for and streamline their monthly house payments.