You’re unmarried and in love — with each other and with that four-bedroom colonial. Before you jump into homebuying with your domestic partner, you need to add financial protection. Here are seven do’s and don’ts before buying a home together.
Do: Consider all the what-ifs
Don’t: Bank on love alone
Before house hunting, unmarried couples should discuss what happens if something goes wrong. The most obvious: What if we break up?
“You should have something in writing that says, ‘Hey, if this dissolves, how do we handle this?’ You do something like that when you are in love, not when words are flying,” says Debra Neiman, a Certified Financial Planner and co-author of “Money Without Matrimony: An Unmarried Couple’s Guide to Financial Security.”
Some other what-ifs to consider: What if one partner becomes unemployed, dies or goes bankrupt?
“I don’t think you should be putting in offers or bids until this stuff is documented,” says Kathy Braddock, co-founder of Rutenberg Realty in New York City. “It gets very easy to buy something. It’s harder to get out of it.”
Do: Create a homebuying prenup
Don’t: Use a standard purchasing agreement
Prepare a legally binding homebuying prenuptial agreement (or partnership agreement) so disputes can be resolved without litigation or mediation. Real estate lawyers typically draft such agreements, but family attorneys can, too.
Partnership agreements can address issues such as how the mortgage will be paid, who pays for what and what happens if the relationship dissolves. They can spell out how long the home should stay on the market before the asking price is decreased.
Do: Make the mortgage match the finances
Don’t: Put it under one name
Wait until you are both creditworthy to apply for a mortgage together, says Neiman.
“I’ve seen couples where one (person) isn’t creditworthy and one is, with the deed in both names” but the mortgage is in one person’s name, Neiman says. “If that’s the case, you have two people with an asset, but only one person is bearing the liability.”
Don’t assume you can just add someone to an existing mortgage. Banks require a refinance to do that.
Do: Title your home accordingly
Don’t: Take a one-title-fits-all approach
Unmarried couples can either hold a title as joint tenants, in which each person owns the property equally and their share is automatically conferred to the other upon death of the first; or as tenants in common, where each person owns a percentage of the home’s assets, with that percentage going to next of kin, or named beneficiaries, upon death.
If you’re unmarried, you need estate-planning documents in place, especially as tenants in common.
“If you die without a will and you wanted your property to go to your co-owner, unless it’s specified in a will, that won’t happen. It might go to your parents. And perhaps your parents weren’t supportive of your relationship,” Neiman says.
Do: Assemble a team
Don’t: Go it alone
“There are a lot of things to owning property when you’re not legal spouses that an attorney really needs to explain to you before you head into a contract purchase,” says Dan Kendall, broker and managing director of The Rachel Kendall Team in Raleigh, N.C.
While brokers can help couples navigate the homebuying market, they can’t offer legal advice on how to title and own a property, Kendall says.
Along with a qualified broker and a real estate lawyer, Neiman says unmarried couples may want to meet with a financial planner and tax attorney, to discuss the tax implications of buying a home together, which can get complex for unmarried couples.
Do: Keep track of finances
Don’t: Forget this is a financial transaction
Once you co-own property with someone, the paperwork continues. A homebuying prenup is useless if you can’t accurately determine who paid for what along the way.
“Frequently only one partner has the resources to fix the roof or put on an addition,” Neiman says. “One may say, ‘I’ll put the roof on or I’ll finish the basement, but when we sell, I want to get (this paid back) first, before we split the proceeds.'”
Do: Backtrack if necessary
Don’t: Ever think it’s too late
“Even if you’ve already made the purchase and everything is still amicable, you should sit down with the what-ifs and put together some kind of agreement,” says Debra Speyer, a trust and estate attorney in Philadelphia. She suggests drawing up an agreement yourself, if money is a factor.
That’s what Sherry Glaser and her partner did when their relationship ended, but they still owned a home together in Clearwater, Fla. They notarized an agreement returning his down payment, and then split the capital gain 50-50. The market boom helped.
“We both played very, very nice so we’d both profit. But if we hadn’t, it could have easily gotten ugly,” Glaser says.