Among young adults in the United States, 12% are now living with an unmarried partner, compared with 5% in 1995. While this simply makes sense from a financial perspective, it just goes to show that you don’t have to be married to someone in order to consider co-owning a home with them.
Thinking about buying a home with your partner or spouse or even a lifelong friend? Congrats! That’s a big life decision and we’re here to support you every step of the way. There are a few questions you’ll want to ask each other before embarking on the journey that is co-owning a home together, though. Here are a few to start with.
Who is Applying for the Mortgage?
While this might seem like a no-brainer for you, it’s actually a question that most married couples don’t seem to think about considering purchasing a home together. So, sit down and ask yourselves this: who will actually apply for the mortgage? You can technically co-own a home together and only have one name on the mortgage.
So, we’ll ask again: who is applying for the mortgage? Typically, if you’re trying to take out a larger loan for a more expensive house, you’ll need to combine both of your incomes to meet the income requirements. However, if one of you has an especially poor credit score, that could affect your application in terms of the interest rates you get on the loan.
That brings us to our next point…
What Are Your Credit Scores?
Yep, you’re gonna have to talk about these eventually. In one study we conducted, we found that most couples (92%) do talk about their credit scores and that the main reason why is when they’re getting ready to buy a house.
While this is great, you should be talking about your credit scores long before you’re even thinking of co-owning a home with anyone. Why? If you know where each of you is at well in advance, you can plan and track together to improve your scores.
So, definitely download an app like Float now that lets you check your score, see your partner’s, and receive tips to improve your scores together. This is pretty crucial if you’ll be applying for a joint mortgage loan together.
Typically, lenders will look at both applicants’ scores. And, they’ll take the lower middle score. That means that if you have the lower scores in the partnership and your three credit scores (TransUnion, Experian, and Equifax) are 600, 615, and 620, they’ll go with the 620, which is the lower middle score. They’ll then use that score to determine the loan interest rates.
Hint: A higher credit score snags you lower interest rates, which can save you thousands of dollars over the entire life of the loan.
How Do You Sign a Title When Co-Owning a Home?
If you’ve decided that you’ll both use Float to help you improve your credit scores so that you can apply for a joint loan together and co-own the home then the next question you should be asking is how do you sign a title with two owners?
First of all, we’d suggest looking at your local and state laws regarding protection for unmarried couples in this situation (if that’s your case). Then, we’d suggest researching state laws for holding a title to a home.
Generally, there are a few ways that a couple (married or unmarried) can sign a title for a home together. For couples, the two most common ways would be:
- You both have titles as joint tenants
- You both have titles as tenants in common
With the first option, you are both declaring that you not only co-own the home together but that you also share rights to use and live in the property. This means you own equal shares of ownership in the home. Joint tenancy gets more complicated and we wouldn’t suggest it in most cases (but you can consult your lawyer on that one).
What About a Cohabitation Agreement?
If you plan on co-owning a home with a friend or an unmarried partner, you’ll want to ensure that you’re protecting yourself legally. Even if you’re married and are still wanting to protect yourself when purchasing a home with your spouse, you might want to think about a cohabitation agreement.
If you’re going to draft one up, include some or all of the following points:
- Who owns what portion of the home (is it split 50/50 or in a different way?)
- Who will be responsible for what amount of the down payment and how will you split the mortgage payments?
- What happens if someone is unable to make a payment?
- How will you handle any termination of the agreement?
How Will You Split Costs?
We briefly mentioned this above, but for couples who are simply purchasing a home together and aren’t worried about cohabitation agreements or issues down the road, it’s still a good idea to talk about how you’ll split the costs of the down payment, any closing costs, and the subsequent mortgage payments.
This doesn’t have to be a scary financial talk either. It’s simply nice to know that you’re both on the same page in terms of how you’ll pay for things. Perhaps you’ll pay for everything out of a joint bank account you have set up. Perhaps the higher-earning partner will pay according to the percentage difference in incomes. The options are endless!
However, the process will be much smoother if you’re both on the same page.
Making Difficult Financial Conversations Easy
If you’re ready to co-own a home with your partner, spouse, or friend but you’re not sure how to start talking about any of this financial stuff then you’re absolutely not alone. Most people feel uncomfortable talking openly about their finances, even with people they trust.
And, that’s what we’re here to tackle! At Float, our mission is to help couples track and improve their credit scores together. We’ve designed an app that lets you share your credit score with your partner at varying stages of the relationship. Just starting to talk about general finances early on in the relationship? Share an emoji indicator of your scores. Thinking about getting married? Share the full score!