Not Married, But Mortgaged
Back in the old days, after a couple was married, they would start to think about buying a home together. Nowadays, however, marriage is not a prerequisite to taking on a mortgage together.
In fact, 72 percent of non-married Millennials say they would purchase a home before getting married, according to a report by WalletJoy, and 38 percent said that they would purchase a home with a partner to whom they were not married. Furthermore, 66 percent of non-married Gen X-ers agreed, as well as 64 percent of non-married Boomers.
Thanks to escalating prices, some millennials have started joining forces with friends to make the leap into homeownership. According to data from the National Association of Realtors, about 4 percent of first-time buyers purchased homes with friends from July 2018 through June 2019 – double the percentage from a year ago.
As these types of deals get more popular, industry professionals warn that these arrangements can be complicated. There are a number of things to consider, such as whose names go on the title, what is the process for collecting and making mortgage payments, and how will maintenance and repairs be handled.
If purchasing a house with someone you’re not married to is in your plan, some distinct factors should be kept in mind.
Qualifying for a mortgage
While your marital status doesn’t make a difference here, you do need to decide whether or not to use all incomes when qualifying for a mortgage.
More income increases your chances of being approved, and you’ll likely be approved for a higher amount when applying together. However, if anyone has a significantly lower credit score or a considerably higher level of debt, that may not be the best plan. Those elements could negatively impact your chances of getting approved and getting the best interest rate.
Dealing with the deed
Legally, ownership of the home isn’t determined by who’s on the mortgage – it’s determined by who’s on the deed. And, there are a few different ways in which you can designate ownership:
· Sole ownership: Only one of you owns the home and that person is the only one financially responsible for it. Consequently, that person is also the only one who can decide to sell it or borrow against it.
· Joint tenancy: Each of you own an equal share of the home and will have to mutually agree to sell or borrow against it.
· Tenants in common: Each person owns a share of the home. Those shares do not have to be equal if, for instance, one person contributes more than the other. Each tenant can decide independently to borrow against their share and, in the event of death, that person’s share is passed to their heirs, rather than the surviving tenant.
Navigating the tax consequences
There are tax complications to keep in mind as well. The IRS currently allows married couples to deduct the interest on up to $750,000 in mortgage debt (or $375,000 each if you’re married and filing separately).
However, if you’re unmarried and own a home together, only one of you can take the deduction. This is another detail that should be worked out in advance in order to avoid a stressful conversation at tax time.
Creating a cohabitation agreement
Even if you are a couple who intends to marry eventually, it’s in everyone’s best interest to draw up a cohabitation agreement. Though no one likes to talk about it, sometimes relationships deteriorate. Making some financial decisions at the start, before emotions are involved, is smart.
An experienced, local Realtor can help you tackle the profusion of information and choices that go hand-in-hand with buying or selling. The number one independent real estate firm in Colorado Springs, The Platinum Group, Realtors provides expert advice from trustworthy professionals and helps ensure the process is less daunting and more positive.
With over 80 percent of their business coming from referrals, The Platinum Group, Realtors deliver top quality customer service the utmost honesty, integrity, and attention.
For a no-obligation consultation, call today: 719-536-4326 or visit PlatinumHomesSales.com.