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How to Buy a House: Steps for Unmarried Partners

Traditionally, the concept of homeownership has revolved around the idea of an individual or married couple buying a home to call their own. Today, many people are exploring alternative arrangements that enable them to co-own property with someone other than a spouse or family member including domestic partners, friends, and even business associates. In 2021 census data, only 46.6% of homeowners were married couples.

There are a variety of benefits to non-traditional homeownership, including the financial benefits of making buying a home more affordable, increasing your individual purchasing power, and shared responsibilities such as property maintenance and repairs. Buying a home unmarried can also present unique challenges, take these 6 steps to help you decide if the benefits outweigh the challenges.

1. Talk about more than just money

Buying a home is a huge commitment that will test both your finances and your relationship. It's essential that you have a serious discussion about what will happen before, during, and after the purchase.

You should share your current income and debts, as these things will determine whether you qualify for a mortgage. Also, discuss whether you expect these things to change in the coming years. If one of you has plans to go back to school or make a significant career shift down the road, it might affect your ability to make payments or refinance your loan.

Make sure you're also on the same page about all responsibilities that come with owning a home. Decide upfront how you'll split utilities, repairs, and general home maintenance to prevent any major disagreements in the future.

2.  Check everyone's credit before applying

Applying for a mortgage with another person can often qualify you for a larger loan at a better rate. However, that's only if you both have good credit. A lender will usually determine a mortgage based on the lowest credit score between two borrowers. That means you could have great credit but still not qualify if your co-buyer has fair or bad credit.

If you both have solid credit, though, bringing two incomes and a bigger down payment to the table means a larger mortgage and a lower interest rate.

3. Decide how you'll split ownership

Most states have laws governing how property is split between spouses. However, unmarried homebuyers have to decide how they'll split the home when they take possession of the title. The two most common ways of sharing a jointly owned property are through tenancy in common and joint tenancy

  • Joint tenancy is when both people equally share the property. They require each owner to take possession of an equal share of the home at the same time. Neither person can sell their share without the approval of the other owner. It also has a right of survivorship, meaning one person's share in the house automatically transfers to the other person in case they pass away.
  • Tenancy in common is a more flexible arrangement. One person can own a larger share of the house than the other. That means if you put up 75 percent of the money when purchasing the house, you could have a 75 percent ownership stake in the home. It's also possible for either person to sell their share in the house without getting the other person's approval in this arrangement. It doesn't contain a right of survivorship. Ownership shares pass to whomever a tenant's heirs are rather than the other owners.

The state you're buying property in will have its own variation on these types of ownership. It's essential you consult with a lawyer to understand the specific property laws for where you live.

4. Make paying the mortgage everyone's priority

No matter what option you choose for splitting ownership, you and your co-buyer are still responsible for making sure the mortgage gets paid. Your lender won't care that one person owns 40 percent of the property and the other person owns 60 percent. If there's a default—they're foreclosing on 100 percent of your home. So if one of you can't make a full payment, the other person will need to step in to cover that shortfall.

5. Understand what tax deduction you can claim

Every owner whose name is on the mortgage and made payments on its interest can take a tax deduction.

The deduction is only available if you're doing itemized deduction rather than taking the standard deduction. It's also only for your portion of the expenses. If you and a co-owner split $20,000 in mortgage interest payments one year, that means you would each individually deduct $10,000.

The IRS will only send one owner a 1098 form for taking this deduction, but the other owners can still note they paid home mortgage interest while filing their taxes.

6. Develop an exit strategy before you need it

Very few people stay in the same home for their lifetime. When you or your co-owner are ready to move on from the jointly owned home, you have a few options.

If you're both ready to go, you can list your home and split the proceeds. In a tenancy in common agreement, one of you can sell their share of the house. This could be to the other co-owner if they have enough savings. Selling to a stranger is another option, but making your roommate suddenly live with a person they don't know might affect your friendship, even if it doesn't impact your finances.

Whoever stays in the home will need to refinance the mortgage to put it either in just their name or add in the new owner. This will likely affect the monthly payment. Selling a home is usually brought on by a big life change like a marriage, switching jobs, or other situation. Don't add the headache of how to best sell a jointly owned home on top of an already complex situation. Make sure you and your co-owner settle on an exit strategy before you purchase a home.

In conclusion, alternative homeownership arrangements can provide you with a path to achieve the dream of homeownership. However, it is crucial to approach these purchases with careful planning, clear agreements, open communication, and a thorough understanding of legal considerations.

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