Buying a home is one of the most significant decisions in life. Given the unique complexities that can arise, it becomes even more challenging when you’re an unmarried couple buying a house.
To navigate this monumental decision smoothly, here are eight crucial questions you should ask each other before making the big move.
What's in this article?
What are your long-term plans?
Understanding each other’s long-term plans is fundamental.
Is marriage on the cards? Do you plan on having kids? What about career aspirations? Do they involve moving to a different city or country? These answers will impact your housing needs, financial planning and ownership structure.
For example, if one of you is considering relocating, having a joint tenancy may not be the best option. Or if you’re planning to start a family, you might need more rooms in your house.
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How will the property be titled?
Property ownership isn’t a one-size-fits-all concept. In fact, legal terminology plays a pivotal role, particularly when deciding how a property’s title will be structured.
Property titles can be held in various ways, and the choice can significantly affect the transference and rights to transfer ownership.
Common structures include:
- Sole ownership: If one party wants complete control of the property, they might choose sole ownership.
- Joint tenancy: This form of ownership is ideal for couples seeking equal shares of the property. Joint tenancy is established under a single document and includes the right of survivorship. In essence, should one of the owners pass away, their share is automatically transferred to the surviving owner.
- Tenants in common: This form of ownership allows co-owners equal rights to the property without dividing it. Unlike joint tenancy, tenants in common each hold a separate title for their property share, giving them the freedom to sell it or bequeath it to an heir.
- Trust: This form of ownership involves a living trust holding the legal and equitable title to the real estate. The trustee keeps the title on behalf of the beneficiary, who retains all management rights and responsibilities.
What happens if we break up?
While it may be uncomfortable, discussing a potential breakup is essential. If things don’t work out, who keeps the house? Should it be sold and the proceeds split?
A cohabitation agreement, which is basically a legal document that outlines rules for the living arrangements of an unmarried couple, can provide clarity and peace of mind. This way, both of you are legally protected in the event of a split.
Equity is usually accrued when couples cohabit, regardless of their marital status.
However, the level of property protection might not be the same for unmarried couples compared to their married counterparts. This contract clearly specifies ownership rights and outlines the course of action in case of a separation.
In the absence of such an agreement, one might find themselves entangled in lengthy and costly legal disputes. A comprehensive cohabitation property agreement often incorporates:
- The nature of ownership as indicated on the title and deed
- The division of income and expenses
- The method for distributing newly acquired assets
- A buyout arrangement
- A plan of action in case of job relocation
- A process for dispute resolution
- An exit plan
How will we split the costs?
From mortgage payments to utilities, maintenance and property taxes, owning a house comes with significant costs.
It’s crucial to agree in advance on how these will be divided. Having a clear understanding can prevent future disputes about these costs, whether allocated equally or based on income.
You should also set up a joint bank account to cover shared expenses and an emergency fund for any unforeseen costs.
What if one of us becomes unemployed or unable to pay?
Life is unpredictable. Sudden job loss, illness or other unforeseen circumstances can affect one’s ability to contribute financially. Plan for these scenarios by setting up an emergency fund, discussing potential support from family or considering insurance options.
Are we prepared for the responsibilities of homeownership?
Beyond the financial aspects, owning a home comes with responsibilities such as maintenance and repairs. Are both of you ready to commit the time and effort (and cost) required? Understanding these obligations can help avoid disagreements down the line.
What are the legal and tax implications?
Ownership structure can have legal and tax implications, including potential benefits or drawbacks.
For example, as an unmarried couple, you won’t be able to file joint taxes meaning that only one person can claim the mortgage interest on their taxes.
There are also potential capital gains tax implications when you sell the property.
Depending on the ownership structure, one or both partners may be eligible for a capital gains tax exclusion up to a certain limit on the profit from the sale, provided the property was their primary residence for a requisite period.
What happens if one of us wants to sell?
Your relationship circumstances can change, and it’s important to establish a plan for what will happen if one of you wants to sell.
Could you buy the other out or agree to split the profits? Setting clear expectations in advance can help reduce potential conflict. You could also consider a prenuptial agreement for additional protection if marriage is in the future.
Have a contingency plan for change
It’s critical to remember that life is often unpredictable, and change is inevitable. Your housing needs and financial circumstances can—and likely will—change over time.
Flexibility is crucial in your housing plan, whether it’s due to professional growth, changes in family structure or simply the evolution of your preferences and lifestyle.
Avoid overextending your finances for a “forever home” at the outset.
Instead, consider your immediate needs and balance them with foreseeable changes. You might need a home with an extra bedroom or two if you plan to have children. Anticipating the need for an in-law suite for aging parents can also influence house-hunting decisions.
Throughout this journey, make sure that both of you feel empowered to revisit the topic of housing needs as your life evolves.
Open communication is key, and adjustments to your housing situation should always be a joint decision. By prioritizing flexibility, you can make more informed, practical choices that stand the test of time.
Building a solid foundation for your shared future
As an unmarried couple buying a house, there are double the amount of considerations to take than if you were buying a home individually.
While it can be exciting, it’s also essential to approach it with diligence and careful thought.
You can lay a solid foundation for your shared future by asking the right questions and making informed decisions—such as choosing the right mortgage lender.
Compass Mortgage offers home loans with a personal touch. We’re here to help with your questions and next steps.
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