Unmarried Couples And Mortgages: What You Need To Know

It is possible for an unmarried couple to obtain a mortgage, but there are some unique challenges and considerations. Unmarried couples need to carefully decide who applies for the mortgage, how to title the home, and what happens to the property if they break up. They may also face fewer tax benefits and need to put extra thought into protecting themselves with a legal cohabitation agreement.

Who is applying for the mortgage?

When it comes to applying for a mortgage as an unwed couple, there are a few things to consider. Firstly, it's important to understand that unmarried couples typically apply for mortgages as individuals rather than as a couple. This means that the lender will only take one partner's income and credit score into consideration when evaluating the application. Therefore, it is generally recommended that the partner with the stronger financial standing, including a higher credit score, income, and lower debt-to-income ratio, applies for the mortgage to increase the chances of approval and to get better mortgage terms and interest rates.

However, in some cases, it might be beneficial for both partners to apply for the mortgage together as co-borrowers or co-signers. This would combine both partners' incomes, increasing their buying power and the amount they can borrow. Nevertheless, if one partner has a significantly lower credit score, it might negatively impact the interest rate offered, and the lender's decision may be based on the lower credit score.

Additionally, it's crucial to understand the legal implications of the decision. The person whose name is on the mortgage will be solely responsible for the debt. In the case of a breakup, the partner holding the mortgage will be liable for the entire debt. Thus, it is essential to have transparent conversations about finances, including debts, income, and expenses, and to consider creating a cohabitation agreement that outlines each partner's rights and responsibilities regarding the property.

Furthermore, the way the title of the house is held will also impact the rights and responsibilities of each partner. Common titling options include sole ownership, joint tenancy, and tenants in common, each with its own pros and cons regarding equal shares, rights of survivorship, and tax implications. Consulting with a real estate attorney or tax advisor is recommended to determine the best approach for the couple's unique situation.

What's the best way to hold the title?

When buying a house as an unmarried couple, it's important to consider how you will hold the title. There are several options for how to do this, each with its own pros and cons. Here are some of the most common ways for unmarried couples to hold the title:

Joint Tenancy

Joint tenancy means that both partners have equal shares of ownership in the property. All decisions about the property, such as renovations or selling, must be agreed upon by both owners. Joint tenancy also includes rights of survivorship, meaning that if one owner dies, the surviving owner automatically receives the deceased owner's share of the property. This is known as the "right of survivorship". However, if one partner decides to sell their share of the house, the joint tenancy ends, and the new shareholder and remaining original owner become tenants in common.

Tenancy in Common

Under tenancy in common, co-owners of a home have equal rights to enjoy the property during their lives, but they hold individual titles for their share of the property. This means that they can dispose of or will away their individual ownership rights as they choose. Unlike joint tenancy, there is no right of survivorship, and no other tenant is entitled to receive the deceased's share of the property. Instead, the ownership share goes to the decedent's heirs. Tenancy in common is a common choice for unmarried couples as it allows partners to own unequal shares of the home.

Sole Ownership

In this case, only one partner's name is on the title, and they are the only legal owner of the property. This option may be chosen if one partner has poor credit or if one partner's income is significantly higher than the other's. However, sole ownership poses a risk for the partner whose name is not on the title, especially if they are contributing to housing expenses, as they will have no legal ownership of the property.

When deciding how to hold the title, it's important to consider the financial and legal implications of each option, as well as the dynamics of your relationship. It's also a good idea to consult with a real estate attorney or tax advisor to determine the best option for your unique situation.

Should you get a cohabitation property agreement?

When an unmarried couple decides to buy a house together, it is essential to consider the potential risks and complexities involved. One way to mitigate these risks is by creating a cohabitation property agreement, which offers protection and clarity for both parties.

A cohabitation property agreement is a contract between two people who live together but are not married. It outlines how they will manage their property and finances during their relationship and in the event of a separation. The agreement can be comprehensive, covering all aspects of the relationship, or specific, such as purchasing a house.

• Legal Protections: Unmarried couples do not have the same legal rights and protections as married couples when it comes to property ownership. A cohabitation agreement helps establish these protections, ensuring that both partners' rights to the property are safeguarded.
• Clarity and Peace of Mind: A cohabitation agreement provides clarity on each partner's rights and responsibilities regarding property, finances, and expenses. It can help prevent misunderstandings and potential legal battles in the future.
• Financial Considerations: The agreement can outline how the couple will handle their finances, including income, debts, and expenses. It can specify how they will divide household expenses, manage joint debts, and allocate financial responsibilities.
• Property Ownership: By specifying the type of ownership (joint tenancy or tenants in common), the agreement determines each partner's share of the property. In the event of a breakup or the death of one partner, the agreement outlines what happens to the property, protecting each individual's interests.
• Avoiding Legal Battles: Without a cohabitation agreement, a breakup can lead to costly and time-consuming legal disputes. The agreement helps avoid this by providing a clear framework for dividing property and resolving disputes.
• Planning for the Future: The agreement encourages couples to discuss their expectations, needs, and future plans. It allows them to plan for various scenarios, such as job transfers, unexpected expenses, or changes in their relationship.
• Customizable to Your Needs: Cohabitation agreements can be tailored to the specific needs and dynamics of the couple. They can cover a range of issues, from property ownership to household chores, and can be modified as needed.

In conclusion, a cohabitation property agreement is a valuable tool for unmarried couples considering buying a house together. It provides legal protection, clarity, and peace of mind, ensuring that both partners are on the same page regarding their rights, responsibilities, and financial commitments. By creating this agreement, couples can focus on the exciting aspects of buying a home together while being prepared for any potential challenges that may arise.

How will you split costs?

Before deciding to buy a house, unmarried couples should have a detailed conversation about their finances and how they plan to split the costs. Here are some key points to consider:

Be Transparent About Your Financial Situation

It's important to be open and transparent about your financial situation, including any debts or sources of income that your partner may not be aware of. This will help you understand each other's financial capabilities and comfort levels when it comes to taking on a mortgage.

Discuss How You Will Share Costs

Decide how you will share the financial burden of homeownership. Will you split the costs 50/50, or will one partner contribute more if they earn a higher income? It's essential to ensure that both parties are comfortable with the arrangement and that it aligns with their respective financial circumstances.

Open a Joint Bank Account

Consider opening a joint bank account dedicated specifically to house-related expenses, such as repairs, property taxes, and other home maintenance costs. This can make it easier to manage and track these expenses, ensuring that payments are made on time.

Understand Upfront and Ongoing Costs

Remember to factor in not only the upfront costs, such as the down payment and closing costs, but also the ongoing expenses of homeownership. These include property taxes, homeowners insurance, homeowners association fees, utilities, maintenance, and any other household expenses. Discuss how you will divide these costs between you.

Consider a Cohabitation Agreement

To ensure that everyone is on the same page, it's a good idea to lay out your cost-sharing agreement in a cohabitation property agreement. This legal document can outline how you and your partner will split the costs and handle financial responsibilities. It can also specify what happens in the event of a breakup or if one partner becomes unable to pay their share.

Choose the Right Type of Title

The way you hold the title to your home will impact how you split the costs and ownership rights. Sole ownership means only one person is recorded on the deed and has all the rights and responsibilities. Joint tenancy means each person owns an equal share (usually 50%) and has a right of survivorship. Tenants in common allow for unequal ownership stakes and do not automatically include a right of survivorship. Consult a real estate attorney or tax advisor to determine the best option for your situation.

What happens if one person wants to move out or dies?

If one person on a joint mortgage wants to move out, there are several options available. One option is to sell the home and split the proceeds. If children are involved, a Mesher or Martin Order can be taken out to postpone the sale of the property. Alternatively, one partner can buy out the other and stay living in the property. If the partner who wants to move out still wants to benefit financially from the sale of the property, they can retain a stake in the property. Another option is to rent out the property, in which case the partner who moves out will need to be bought out by the remaining partner.

If one person on a joint mortgage dies, the process can be complicated. If the mortgage was arranged as a joint tenancy, the surviving partner inherits all of the property equity and mortgage debt. If the mortgage was arranged as tenants in common, the deceased person's share goes to whoever they have willed it to in their will. This may or may not be the surviving partner. In either case, the surviving mortgage holder will be responsible for the outstanding loan. If the deceased did not leave a will, their share of the property will be inherited by their closest living relative.

In the case of a death, the mortgage lender should be notified as soon as possible. The lender will explain their procedure and ask for a copy of the death certificate. The lender may put repayments on hold while the estate is settled. However, the surviving partner may struggle to afford the mortgage repayments alone. In this case, there are several options available. They may request a payment holiday from the lender, extend the mortgage term, switch to an interest-only mortgage, use money from insurance or benefits to make a lump sum overpayment, sell the property and move to a cheaper one, or remortgage.

Frequently asked questions