We have been noticing a significant shift in buyer trends, specifically with millenials, who now make up the largest sector of first time home buyers.
Historically, this segment of home buyers’ were typically in their early 30’s, boyfriend and girlfriend couples, who are professionally employed and are thinking about their futures together, such as getting married, buying a home, and starting a family. The new trend that has recently surged with couples in love is buying a home first, getting married, and then starting a family.
Non-married couples purchasing their first home together prior to marriage is not uncommon, but it has increased more as a result of the decision to put off marriage for later. As well as the desire to establish a career, pay off student loan debt, and save money for retirement.
Although this thought process might come off as untraditional, it often does make financial sense for some couples to purchase a home before getting married, in order to start their lives together with the homebuying process behind them.
We always recommend that a couple which is interested in purchasing a new home have an important, perhaps slightly uncomfortable, conversation, like making decisions on financing, a co-ownership contract for the house, and the type of title to the deed before they start the home search process. Here is an outline of some the basics that should be covered:
Understand Your Personal Finances
First, it is important to look at individual financial situations separately and decide if it is best to purchase a home using joint financing. If one of the borrowers’ has a higher credit score, more assets, and more stable income, it may be best to put the mortgage in that person’s name, meaning only one of you will have full responsibility for repayment of the loan. That way, you’ll get a better interest rate, which translates into lower monthly payments.
Create A Co-Ownership Contract
This brings up the subject of the home’s ownership. Even if it’s in your best interest to have the mortgage in only one name, a co-ownership contract can help balance the responsibilities. This would address such questions as what happens if your relationship ends? What if one party becomes disabled or dies? Who pays the monthly maintenance bills, and for major repairs (i.e. the roof begins to leak)?
An attorney or family mediator should help you create a co-ownership contract before closing. Discussing these possibilities when neither of you is in a bad mindset makes it much easier to deal with them than if they unexpectedly drop in your lap later when nerves are already stretched.
Determine Who Will Own The Home
There are different ways to buy a house which vary from state to state. The basic options are “sole ownership”, “joint tenancy”, and “tenants in common”. Here’s a quick view of what differentiates one from the other:
- Sole Ownership – Only one of the borrowers’ name is on the deed, giving that one person all the rights and responsibilities; ownership rights are determined by the name on the deed, not on the mortgage; if you split and your name is not on the deed, you are not entitled to any monetary compensation for money you contributed to the mortgage, upkeep, or upgrades
- Joint Tenancy – Each borrower owns 50% of the property. If one dies, ownership automatically transfers to the survivor. If you split, there could be a problem if one of you cannot or will not buy the other out
- Tenants in Common – This can be a good compromise if one of the borrowers will be making a larger financial contribution to the purchase. The one putting up the down payment could be listed as 75% owner and the other as 25%. The drawback is if one of you dies, the remaining ownership does not automatically revert to the survivor
Regardless of which you choose when you purchase your home, you will want to do a title change when you get married to reflect the new status with a “quitclaim deed”. We always recommend seeking legal advice as to what may be ideal ways of holding title for you.
The Final Decision Is Between You And Your Partner
Family members can be a great source for advice and guidance as needed, but make sure that this decision is made by you and your partner for your best interests together. The bottom line in this big step is that it is yours. Make the difficult decisions with a clear head before contacting a real estate agent.
Regardless if you choose to purchase a home before marriage, after marriage, or not get married at all, purchasing a home with your partner is a life-changing step. It will bring challenges, but will also bring you closer together and allow you to start a life together.
If you’re ready to inquire about, please reach out to a Loan Officer at Bluefire Mortgage Group that can help answer your questions at (760) 930-0569.