Buying A House As An Unmarried Couple? Here are 10 Financial Tips

Buying a Home

Buying A House As An Unmarried Couple? Here are 10 Financial Tips

December 16, 2021

Share This

Buying a house is always exciting, although the reality could be complicated if you’re doing it with a partner who isn’t your spouse. Per the National Association of Realtors (NAR) survey, 20% of those who purchased a property in the last year were between 22 to 30yrs old and not married. In that time, unmarried couples made up 9% of all homeowners.There are many things to consider before buying a house as an unmarried couple and we’ve compiled a list of of the considerations in this blog post.

3 Financial Considerations When Buying a Home Before Marriage

Becoming a homeowner with a partner can be a wise investment for the future. However, unmarried couples have to overcome a few unique hurdles first.

1. Finances Must Be Agreed On

Getting a mortgage could have significant financial consequences for unmarried couples. Before you begin to look for a house, discuss with your companion about their finances and how much you’re comfortable spending. Consider each partner’s income, credit score, debt payments, and any other issue that may affect your capacity to meet housing costs as a component of this procedure. Once you’ve determined how much both of you can invest each month, you can now work on finding a house that suits both of your needs.

2. Make a Cost-Sharing Strategy

While dividing bills evenly may appear to be an easy approach to share the burdens of housing expenses, that isn’t always the case. It’s better to figure out who would be liable for real estate taxes, community association charges, premiums, deductibles, and management expenditures to make sure that everybody is on the same page. Determine how you’ll divide the electricity fees, broadband, television, and other household expenses.

Maintaining a separate account for loan repayments as well as other expenditures can help some homeowner’s budget and keep track of who is paying for what. You can also form a joint bank account, which will help when dividing house expenditures so that each partner contributes to the fees transparently.

3. You Should Sign a Cohabitation Agreement

A cohabitation agreement, also known as a cohabitation property agreement, is a lawfully enforceable document that specifies how property and other assets will be divided in the event of separation. As this agreement is extremely legal in nature, it’s recommended to use a lawyer to ensure that both parties are sufficiently safeguarded. This contract must be appropriately designed and executed. The following sections should be included in a cohabitation contract:

  • The type of ownership listed on the contract (Joint tenancy, tenants in common, sole ownership, etc.)
  • The housing costs that are shared.
  • In the event of a separation, the conditions of the buyout.
  • A plan if one of the parties wishes to sell.

If you and your partner form a cohabitation agreement, review it on an annual or bi-annual schedule to add any changes in your situation, such as pregnancy or a break up.

Co-borrowing on Mortgage Loans

While purchasing a house as a married pair is frequently considered the more conventional path to home-ownership, the process of buying a house as an unmarried couple isn’t all that dissimilar. The most noticeable distinction is that, unlike married couples who frequently file for loans jointly, unmarried couples usually apply separately.

Applying for mortgages separately means that the creditor can only examine the earnings of one individual, which can restrict your options if that individual has a lower credit score or income.

Certain lenders, on the other hand, permit co-borrowers and consider both borrowers’ wealth, earnings, and credit rating when analyzing a loan application.

A co-borrower is someone who’s name appears on the mortgage application and is equally liable for the payments. Their income and credit score are used to qualify for a loan, unlike a co-signer who is responsible to repay the loan only if the primary borrower misses a payment.

Getting Ready to Submit a Mortgage Application

One of the biggest hurdles to overcome as an unmarried couple trying to buy a home is with applying for mortgage loans. Here are a few points to think about when applying for a loan as an unmarried couple.

Who Will Be The Lead Borrower?

Unmarried couples are more likely to qualify for loans as singles instead of as a partnership. When you’re applying as a couple, even if only one of the partners has a weak credit history, your mortgage may still get rejected or make you eligible for higher interest rates. Usually, the partner who is stronger financially should file for the loan so that you can be eligible for better borrowing terms and lower rates of interest.

Credit Rating

The lowest acceptable credit score varies depending on the type of loan you’re applying for. For instance, a FICO score of 620 is usually required to qualify for a standard mortgage. Scores even higher than 620 make you eligible for better rates and conditions. To choose who must file for a loan, utilize a free credit score portal to verify and analyze your credit scores.

Income

According to most banking firms, borrowers should not invest upwards of 28% of their income before taxes on housing. It’s important to consider which partner has a higher income and weigh it against variables like credit score, savings and more while selecting who must apply as the main borrower.

Work History

Creditors would rather see a consistent employment record when looking for potential borrowers. This is an indication, similar to income and credit score, of a borrower’s ability to make punctual mortgage payments.

If your partner is a freelancer with an erratic work history and you are a W2 employee, you may be the better candidate. On the other hand, if your partner is a freelancer that makes more money than you, they may be the better candidate.

You could be eligible to qualify for a loan as a co-borrower if your lending institution permits it.

As a result, you’ll be eligible to consolidate both of your wages to qualify for a larger loan. Here are some of the common conditions you must fulfill to be a co-borrower:

For FHA Loans

FHA Loans are insured by the US Federal Housing Association and are offered only by lenders approved by the association.

  • Must live in the US
  • Only for family members, relatives or close friends
  • Need to have a credit score of 580 or more
  • The co-borrower’s name must be on the mortgage and title
For Conventional Loans

Conventional loans are offered by private mortgage lenders instead of government agencies like FHA loans.

  • Must live in the US
  • Only available to family members, relatives or close friends
  • Need a FICO score between 620-640

Co-borrowers can help you qualify for a mortgage if you have a low debt-to-income ratio. However, if you have a poor credit history, adding a co-borrower will be of no use for you no matter how good their credit rating is.

Real Estate Experts Are a Valuable Resource

Becoming a homeowner with a partner before marriage is a huge step in your relationship and in your life. Even though buying a house as an unmarried couple is not all that different from buying it as a married couple, the differences that exist can make the home buying process complex. Along with the tips in this blog post, real estate agents or NRPs can provide you with information specific to your situation. Get in touch with your local NRP here.