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Sound advice for couples buying a house without getting married first

When it comes to buying a home, most people aren’t alone: ​​60% of home buyers in the United States are married couples, according to the National Association of Realtors.

Still, the share of unmarried people, from romantic partners to roommates, buying a home together has risen to 9%, the real estate association found.

The incentive to buy residential property increases as mortgage interest rates are low and house prices continue to climb. For some, the marriage is on hold, said Andrea Collins, home information expert at Hippo Insurance.

Collins compares the $30,000 spent on an average pre-pandemic wedding to half the recommended 20% down payment on a $300,000 home.

In addition to romantic couples, home buyers are also co-signing a deed with friends and family before they are taken off the market.

“Waiting a few more years to buy a home can turn the American dream into a distant fantasy for most couples,” Collins said, citing that residential property prices in the United States have skyrocketed 113% over the past of the last decade.

Unmarried couples who buy a house or condo without getting married first need to agree on who’s name will appear on the mortgage and who can claim the tax deduction, Collins said.

Partners also need to know how they can protect their investment, she added.

A recent study by Hippo found that 20% of respondents bought their first home with a partner since March 2020. Most – 82% – said they had made financial sacrifices to afford their new home.

They repaired their credit, cut expenses, canceled vacations, and moved in with someone to save on rent. They may also have moved away and found a new or second job to earn more money.

Yet one in three unmarried co-purchasers say they are less prepared for home ownership than they expected.

To be better prepared, Hippo offers five questions single buyers should think about before getting into real estate:

Will both names be on the mortgage? When applying for a mortgage, your income, credit score, work history, debt-to-equity ratio, and other financial factors will be taken into account to determine how much you can borrow and your interest rate.

If any of your co-borrowers have student loans and other debts or a low credit score, you may want to exclude them from the mortgage application.

That means there’s no getting around the problem: you and your partner will need to discuss your finances before you start house hunting.

If you both have similar financial backgrounds, applying as co-borrowers can be advantageous because both of your incomes will be taken into account. Since a higher income level makes lenders feel more protected, they often offer a lower interest rate or higher borrowing limit to co-borrowers with stable incomes.

Who will hold the title? The title might not seem like a big deal compared to the mortgage, but since it dictates how much of the house each owns, it’s important to get it right. Co-purchasers can choose to have one person own the property or it can be divided in any way. Often the ownership percentage reflects the amount of money each person invests in the property.

When buying a home, you may hear the term joint ownership with right of survivorship, which is the percentage of ownership that passes to co-borrowers in the event of death. Another term is “tenant in common”, which is the percentage of ownership that passes to the heirs of the deceased as stated in their will.

Understanding these terms is essential, as they determine how ownership of the home is delegated in the event of the death of one of the co-borrowers.

Do we need a property agreement? A property deed is a legally binding document that dictates the share of finances when it comes to paying the mortgage, utilities, and other household expenses.

Most property agreements, especially those made with unmarried couples, will include information about the owner of the property in the event of a breakup. It’s also a good idea to include information on how the profits will be split at the time of the sale.

A lawyer or mediator can help you write your property contract. Hiring someone who knows your situation will help you later if you need to update the agreement after a breakup, marriage, or childbirth.

Will we be living in the property full time? If you and your partner invest in real estate to rent out to tenants or use as a second home, you are considered a non-occupant. Non-occupier mortgages will likely require you to have a better credit score, pay a larger down payment, and pay a higher interest rate due to the additional risk your lender is taking on.

Who will benefit from the tax deduction? When you itemize deductions on tax forms, you can deduct the interest you paid on your principal residence mortgage from your income, which reduces the amount of tax.

Married couples probably file their taxes jointly. But when you file separately from your co-buyer, only one of you will receive a 1098 mortgage interest statement from the lender. To also claim the deduction, you must legally own the property, be registered on the mortgage, and pay the lending institution.

Hippo experts say it’s a good idea to consider which partner makes the most money, whose name appears on mortgage payments and who bears most of the financial burden when making this decision to see who benefits the most from this tax relief.

Once all legal and financial questions have been answered, you can discuss the size, features and location of your future home. You might want to ask your partner:

  • What kind of neighborhood do you want to live in?
  • What kind of entertainment options, amenities or businesses would you like nearby?
  • Would you like to bring pets or children into the house?
  • Are there any improvements you would like to add?
  • What are your deciding home buying factors?
  • How many houses do you want to visit before making an offer?
  • How much savings should we have in case of emergency?
  • Are we going to repair the house ourselves or hire professionals?
  • How long do you see us staying in this house before selling?
  • How will we share the profits when selling?

Continue the conversation once you’ve settled in. Understand who will take care of home maintenance, chores and lawn maintenance.

— Edited by Janet Eastman | 503-294-4072

[email protected] | @janeteastman

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