Buying A Home Before Marriage
For a variety of reasons, millennial couples are increasingly more inclined to buy a home together before marriage. Nearly 25% of now-married couples bought a house together before tying the knot, according to a 2013study by Coldwell Banker.
Although the idea of buying a home can be enticing regardless of marital status, keeping these financial tips in mind may help unmarried buyers rest a little easier at night.
By Kristin McFarland
Try to keep emotions at bay
When you’re looking to make what is probably the biggest purchase of your life, it is understandable that you’ll be feeling a range of emotions. While it’s doubtful anyone ever regretted not being excited or stressed enough during the process, it’s quite likely many wished they were more pragmatic. Having the foresight to plan for a worst-case scenario will help protect the investment both you and your companion are making.
Honesty is the best policy
Before beginning the process to purchase a home, have an honest conversation about each other’s financial situation. Your income, credit score, and other debt obligations will play a large part in the interest rate and amount you’ll be able to secure through a lender.
Run the numbers with your financial advisor and be realistic about what you can afford to contribute to the down payment, and what your budget can withstand in monthly payments. If you or your partner has a high debt to income ratio or bad credit, it may be disadvantageous for a couple to purchase together. Instead, the person staying off the loan could contribute to the down payment by making a gift.
Make a contingency plan
Of course you don’t want to talk about it. But if you’re buying a home before marriage it is important to iron out the details in the event of a breakup, as unmarried couples are not automatically afforded the same legal rights as their married counterparts.
Sell: The simplest way to terminate your joint ownership is to agree to sell the property if the relationship goes south. Be sure to agree in advance on what your individual equity shares are based on the down payment amount, percentage of mortgage and other expenses paid, and so forth. Do keep in mind that market fluctuations could mean selling at a loss.
Buyout: If someone wants to remain in the home, the process of buying out the other person will become increasingly complex. Consider the following as you discuss the best arrangement:
- How will you determine the market value of the home? A real estate agent or appraisal will be an added cost, and how will you resolve disputes on the valuation?
- Assuming you’ve already agreed on ownership shares, will the person who remains in the home realistically have the cash necessary to buy out their ex within an agreed-upon time?
- Be prepared for some paperwork problems. Even if you both agree on the terms and cash isn’t an issue, you will still need to transfer the deed and work with your lender to remove the selling partner from the mortgage. If your lender does not agree (and they don’t have to) the buying partner will either need to refinance into a new loan on their own or the ex-couple may wind up selling the property together. Leaving the selling party on the loan will not only impact their ability to get a new mortgage, but they’ll also remain legally responsible for all future payments.
In addition to these considerations, there are also various ways to title the purchase which can help establish legal ownership. Of course, this and the rest of your contingency planning should be discussed with your real estate attorney before closing. Still have questions about buying a home before marriage? Contact us today for a consultation.
The Darrow Company is a nationally recognized wealth management firm in Boston and Concord, MA as well as Los Angeles. Since 1987, we have provided comprehensive asset management and financial planning services to individuals and families. The Darrow Company serves a diverse client base with particular focus on investment management and financial planning services for physicians and medical professionals, high tech and biotech professionals, entrepreneurs, and business owners in the Greater Boston area.
As a fee-only Registered Investment Advisor (RIA), our approach to wealth management is based on a partnership with clients – built on trust, personalized advice, and a long-term view. Through these relationships, we’ve worked to help clients across generations preserve and grow their wealth.