Mortgages for Unmarrieds: Part II
When you buy a home as an unmarried couple, getting approved for the mortgage is only half the challenge. You also want to be sure to set up the ownership and financial arrangements so that the interests of both partners are protected.
Last week we looked at what unmarried couples need to do to qualify for a mortgage (www.mortgageloan.com/mortgages-unmarrieds-part-i-9446). This week we'll take a look at the other side of the equation.
Although it's become very common for unmarried couples, straight or gay, to live together in long-term committed relationships, the law is still primarily oriented toward married couples when it comes to matters of home ownership. For the most part, unmarrieds still have to work out their own arrangements when it comes to shared ownership, inheritance rights or how the property is divided in the event of a break-up.
Married couples generally don't have to worry about that - state laws have taken care of those thing for them through divorce and inheritance laws, though they can still specify other arrangements through prenups and wills. While some states do have community property laws that govern the disposition of shared property in the event of death or splitup, it's still a necessity to set up your own "prenup" when buying a home together as unmarrieds.
Joint tenants vs. tenants in common
Depending on how you wish to proceed, you may choose to take possession of the property as either joint tenants or tenants in common. Joint tenants share fully in ownership of the property, so in the event of a split each are entitled to an equal share. Tenants in common may hold unequal interests in the property, such as a 30-70 split, and partners do not automatically inherit their partner's share if the latter should predecease them.
Will your partner inherit your half?
One of the most important issues to address for unmarrieds to address when purchasing a home together, and one many prefer to ignore, is the matter of inheritance. Even more than the possibility of breaking up, the inevitability of death is something that many couples are just not comfortable dealing with.
However, if your partner should pass on without a will leaving their interest in the home to you, it's quite likely that you could find half of your shared homes in the hands of your partner's relatives. Possibly even more, if it could be shown that they paid the major portion of the mortgage, utilities and other costs of the property.
Protecting your interests
You should also agree beforehand exactly how the property will be disposed of in the event the two of you go your separate ways. Though we all like to think we'll be able to negotiate this like adults if the time should come, that doesn't always happen, unfortunately.
At a minimum, you should spell out what each partner's financial interest in the property will be. Will it be a straight 50-50? Will one partner hold a greater interest if he or she is putting up the down payment or will be paying a larger share of the mortgage? What happens if one partner suffers a loss in income so the other has to take on more of the mortgage burden? All this should be considered.
You also need to think about what happens to the home? If the property is to be sold, you can simply split the sales proceeds, but what if one wishes to stay? How will that person buy out the other's interest? How will you arrive at a fair price? (hint - think independent appraisal).
If one person may wish to stay in the house, you'll want to include a provision in your "prenup" that they refinance the mortgage in their name alone. Otherwise, if both of you are named on the mortgage, both parties continue to be responsible until the loan is paid off. You can take your name off the property title simply by signing a quitclaim deed, but you can't simply excuse one party from a mortgage so easily. A provision that the home be sold if the partner getting the property cannot refinance it is a very good idea.
Planning for home expenses
Your homeowners' prenup should also specify how the major expenses of owning the home, aside from the mortgage, will be addressed. Although you may not need to actually specify how the utility payments are going to be divided - relationships are based on trust, after all - it's not a bad idea to spell out responsibility for major repairs and upkeep is to be handled.
Owning a home together can offer a lot of benefits, both financial and personal, for two people who have chosen to make a life together, and for many it even represents the level of commitment others find in marriage. However, just like a marriage, be sure to go into it with your eyes open and take the necessary steps to protect the interests of yourself and your partner as well.
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