More and more unmarried people are co-buying houses together. A recent Coldwell Banker Real Estate study found that 25% of couples between the ages of 18 and 34 purchased a house before they married. Committed partners of all ages are buying homes together, too.

When you co-own a house with a person who isn’t your legal spouse, there are important questions you need to ask. That’s because while states have various laws that give married people rights to property they own in common like houses, these laws often do not apply when you buy a house with someone else.

If this sounds like you and the person you love, read on!

Two People, Two Credit Scores

Lenders typically treat married couples as a single person when it comes to their credit score. One number applies to both people.

Unmarried people are seen as individuals with two credit scores and when these two scores are very different, it can affect how much money creditors are willing to loan and how much interest they will charge. As a result, it is a good idea to look at your credit scores before you apply for a mortgage as well as how much each person can afford to pay.

Your incomes and debts will be considered by the lender just like they are for all home loans. Keep in mind that anyone who co-signs a mortgage is legally responsible for paying the full amount, even when the other person becomes unable or unwilling to pay their share.

Three Options for Legal Ownership of the House

One of the most important questions people need to answer when they co-buy a house is, “Who has legal title to the property?”

Broadly speaking, there are three options. Because laws vary from state to state, and community to community, you should consult a local real estate attorney before you make an offer on a house.

Option A. One Person as Sole Owner

Overview: This is just how it sounds. Only one person in the couple takes the title and is the legal owner of the house and only their name appears on the deed, even if the other person contributes to the payments.

Details. There are potential interest rate and tax savings to this choice. You might get a better interest rate if just the person with the higher credit score applies for the loan – or you might save more on taxes if one person can claim all the house-related deductions. These arrangements can cause complications with lenders and taxing authorities, however, so you’ll want professional help.

The person who is the legal owner of the house can sell it without the other person’s permission and can leave it to someone else in their will – unless they have additional signed agreements that state otherwise. It is often difficult and costly to establish that you are the co-owner of a home when your name does not appear on the deed.

Option B. Joint Tenancy or Joint Tenants with Rights of Survivorship (JTWROS)

Overview: Both people legally co-own the house with 50/50 shares.

Details. Both people have their names on the deed and neither person can sell the house without the other person’s permission in joint tenancy. Each “tenant” is usually considered to own half the house regardless of how much he or she paid toward the home.

If one person in the couple dies, their share of the ownership of the house automatically passes to the other tenant. This is true even if the person tries to leave their share of the house to someone besides the other tenant in their will.

Option C. Tenants in Common

Overview: Both people legally co-own the house and they can own shares of different proportions.

Details. With tenants in common, a couple can share ownership 60/40 or 75/25 or whatever they like. One reason unmarried people may choose this option is that it allows them to give different contributions to the down payment or mortgage payments.

Tenants in common don’t need the permission of their partner to sell their share unless they have additional signed agreements that state otherwise. If one tenant dies, ownership of their share does not automatically transfer to the other partner. Instead, ownership falls to whoever the tenant names in their will. This can be their partner, or it can be someone else.

Here is a summary of some of the key differences: 

  Sale Owner Joint Tenants WROS Tenants in Common

Legal Ownership?

100/0

50/50

Variable

Permission Needed to Sell Share?

No*

Yes

No*

Partner Automatically Inherits?

No*

Yes

No*

*Additional signed agreements can affect the answers to these questions. 

Get a real estate attorney to make it nice and legal

No matter what your decision you make, get a good real estate attorney to review your plans, draw up documents, and ensure everything is done right. This is especially important because laws affecting unmarried people co-owning a home vary from state to state and municipality to municipality.

It is also a good idea to consult tax and finance experts to understand the potential impact on your deductions, estate planning, and other issues. While you’re at it, figure out how you are going to pay all the costs associated with homeownership: insurance, taxes, utilities, and more.

Embrace the relationship benefits of the process

If you feel this is taking the romance out of co-buying a house with a person you love – don’t! Remember that money is one thing about which many couples disagree.

Answering these questions in an open, honest, and caring way can not only make your finances healthier and happier – it can make your relationship healthier and happier, too!

Another thing that can make your finances happy is choosing the right loan. Get our Free Home Loan Comparison Guide.

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