Economy & Jobs
Does Buying a House Before Marriage Make Sense?
Buying a house before marriage with your significant other may not seem like the correct order to do things, but according to a report from the National Association of Realtors, 37 percent of all home buyer households (age 33 and younger) from 2001–2012 were single, 8 percent purchased a home with their significant other before exchanging “I do’s.”
While marriage is a big commitment and milestone, so is committing to a 30-year fixed mortgage on an asset that will remain in one place. But what if you’re eager to partake in the real estate portion of the traditional American Dream, but haven’t married? Should you still buy a home with your significant other?
If this is a road you choose to go down, it’s best to prepare, protect, and educate yourself before jumping in.
Divvying Up and Titling Property
First, you’ll want to have an open, honest conversation with your partner about what might be affordable and who will be responsible for what costs.
Second, you’ll need to address the legalities of the situation and ensure that you’re both protected in terms of assets and liabilities. Consider documenting which party is responsible for specific portions of the down payment, mortgage, real estate taxes, and insurance in a cohabitation agreement. This legal document will protect both parties in case the relationship breaks down. A property agreement will also be valuable, since it documents who will bring what furniture, appliances, and miscellaneous items into the home and how items acquired jointly during your time living together will be divided if you separate.
Also of utmost importance in this situation is the titling of the property for ownership purposes. An ownership title for joint tenancy with rights of survivorship gives you each 50 percent ownership of the house, and should either of you pass away, the interest of the deceased owner automatically transfers to the surviving owner. With an ownership title that specifies joint tenants in common, however, you are able to specify what percentage of ownership each party is responsible for (75 and 25 percent, for example), and there is not a survivorship benefit. Should one of the owners pass away and not specify in a will that the property should go to the surviving owner, the interest is transferred to the estate and distributed according to the probate process.
Cleaning Up Your Finances
Third, clean up your finances and make sure they stay in good shape. Keep in mind that you’ll be bound to your significant other’s credit score and affected by his or her habits even though you technically haven’t tied the knot yet. Maintaining timely payments is crucial to ensuring your scores remain intact; if one of you decides to back out of the relationship or skip out of your portion due, that could create a slippery slope for the other.
When purchasing a home, you’ll likely be approved for a mortgage amount and rate based upon both of your finances. If the relationship ends, trying to refinance to get one partner off the title can get messy, because you may not qualify for the terms of the loan on a standalone basis.
The most important thing? Communicate, communicate, communicate. Nobody wants to go into an exciting situation by preparing for the worst, but when buying a house before marriage, it must be done. Discuss how you’d want things handled emotionally and physically should the relationship not work, and document every decision you both come to. It’ll bring you both a great deal of peace if the unexpected arises.
Mary Beth is shaking up traditional views of financial planning by leveraging technology to work with GenYers across the country to help them make smart choices with their money. She is a Certified Financial Planner™ and Founder of Workable Wealth. Her expertise has been featured in The Wall Street Journal, CNBC, Forbes and more.