This article was contributed by financial expert and blogger Mary Beth Storjohann, CFP, author, speaker, and founder of Workable Wealth. She provides financial coaching for individuals and couples in their 20s to 40s across the country, helping them make smart, educated choices with their money.
First comes love, then comes the mortgage, then comes the wedding? Although it may seem unconventional for a couple to purchase a home together before making the trek down the aisle, according to a 2013 study by Coldwell Banker, approximately 25% of couples between the ages of 18 and 34, and 14% of those aged 45 and older purchased a house together before they were married.
Here’s how to be unconventional, but also protect yourselves:
Address the Legalities
When going into any type of transaction with a partner, it’s imperative you have open and honest conversations about roles and responsibilities.
- How much will you each contribute to the down payment?
- How much of the mortgage payment will you each be responsible for?
- Who will handle the excess fees, such as such as property taxes, homeowner’s insurance, and any homeowners association fees?
- Who’s responsible for property maintenance and upkeep?
- How will you fund or handle home upgrades?
Delegate roles and responsibilities so that you’re each comfortable with what the other is contributing and consider documenting these in a cohabitation agreement, which is a legal document that will protect each of you should the relationship turn sour. Also, draw up a property agreement, which lists the items (furniture, appliances) each of you bring to the home and designates how jointly purchased items should be divided, if ever necessary.
Aside from documenting the financials, consult with an attorney on the correct titling of your property. There are two options:
- Joint tenancy with rights of survivorship gives you each a 50% ownership in the home. Should either of you pass away, the deceased’s interest will automatically transfer to the surviving owner.
- Joint tenants in common lets you to designate the percentage each owner is responsible for (i.e., 70% / 30%). In addition, the deceased’s interest wouldn’t automatically transfer to the surviving owner. Should either of you pass away, the percentage owned by the deceased will be distributed according to the deceased’s will or based on the probate process in your state should no will exist.
Have Open and Honest Conversations
If you’re talking about purchasing a home together, you should’ve already shared what each other’s income levels look like, existing savings account totals, debt load, and current credit score. If possible, peek at each other’s credit reports so you know what you’re each getting into. Also, share how much of your existing assets you’re willing to commit toward a home purchase.
Know that when you purchase a home, you’ll likely be approved for a mortgage amount and interest rate based on both incomes and credit histories. Should the relationship not work out, you’ll need to agree to one of several scenarios:
- Maintaining joint ownership.
- Selling the property.
- Trying to refinance into only one of your names, which may be tough with only one income, depending on the size of your mortgage.
In addition to divulging all of your financial numbers, be sure to come clean to each other about any financial habits that you have.
Naturally, you’re planning for a positive future together, but how should you handle things if the relationship doesn’t work out? By having an open and honest dialogue early on, you’ll set the stage for a more stress-free purchase process.
This article is not intended to be and does not constitute legal advice, or a substitute for specific legal advice or opinions. The reader should consult legal counsel before using any sample documents available through this article.