Advice for Couples Buying Their First Home
Many couples in the Augusta area will be buying their first home this year. When it comes to investing in real estate, there are a few things that you should know before signing on that line.
According to an April 2013 Marriage and Homebuying Study conducted by Coldwell Banker Real Estate, one in four couples aged between 18 and 34 years bought their first home together before they got married.
People want to take advantage of low mortgage rates while they last. Also, couples want to be able to deduct mortgage interest from income tax and start building equity early. High rent has also made couples prioritizebuying their first home.
While the sense to prioritize buying a home and secure the future is to be applauded, things can come apart if not well executed. buying their first home as a couple before getting married is very different from a married couple doing the same. Married couples have laws in place to protect their individual rights should the union fail to hold. The law is not so clear for unwed couples. Should things not go as planned, breaking the co-ownership of a house as an unmarried couple can get quite complicated.
Factors to consider
Unwed couples considering buying their first home before getting married should consider the following five factors;
1) Come clean
It is important to be completely truthful about individual financial histories. Some couples do not have the whole truth about each other’s financial history, liabilities and credit history.
Mortgage applicants must give full and accurate information about their financial situation. Before facing lenders, it is advisable to face each other with these details.
Prenuptial agreements are not the reserve of the wealthy. An unmarried couple thinking of buying their first home together should not rely only on a standard real estate purchasing agreement. For most couples, a house is their biggest asset and the one for which they incur the highest debt. It is therefore important to have a legally binding agreement that ensures individual protection just in case.
This would be contained in a partnership agreement or home-buying prenuptial. It details the financial contribution every partner would make towards the mortgage, how the mortgage will be paid in case the union is dissolved or if a decision is made to sell the house. It also addresses what would happen if one partner became unwilling or unable to hold up their end of the deal. With this agreement, mediation or litigation won’t be necessary if things went wrong.
3) Understand the options of ownership
Most unmarried couples buying a first home together want to own it jointly without realizing the implications of this. One implication is that the way property is registered affects transfer rights and tax consequences. It is important to known and understand state laws as an unwed couple buying a house together.
Broadly speaking, couples have three home titling options.
- One partner can hold the title as the sole owner
- Both can hold the title as joint tenants
- Both can hold the title as tenants in common
Titling as joint tenants means that two unmarried partners have equal ownership and each has the right over all the property. Should one partner pass away, the other automatically inherits the property.
With the tenants in common option, the partners put down in writing the percentage ownership of each partner. If one partner passes away, the surviving partner gets the percentage of the deceased one as specified in a living trust or will. If there is no will or agreement, the surviving partner does not automatically get the other’s share. Instead, next of kin will inherit it as stipulated by state law.
Sometimes, one partner being registered as the sole owner may work best. This works if one partner has a poor credit history and rating that would compromise chances of qualifying for a mortgage. It may also be the best option where one partner is paying for the house entirely. Unmarried partners should also know that contributing towards the purchase without being listed means one cannot deduct mortgage interest from their tax returns.
4) Keep track
After the purchase, it is important to keep records of expenses related to the house. Should there be a split, this will be taken into account when sharing proceeds from sale of the house. A partnership will be useless without records such as receipts.
Whatever decisions you make, involve the experts. Work with a real estate agent or an estate planning attorney to ensure that everything is down on paper as required by law and that you fully understand the implications of the decisions you make.
As a couple in love, the tendency may be to rely on feelings in making decisions including buying their first home. The assumption is that the love is real and will never end. The reality is that things may change and if they do, it serves both partners rather than hurts them to make provisions for this possibility.
– Dan Moyle on Mon, Oct 13, 2014