Purchasing a home as an unmarried couple can create some unique challenges. Over the last decade, it has become more common for unmarried couples to buy a home together. Younger generations marry later in life (if they get married at all) and live with their partners longer before tying the knot. Here are some big things you should consider before you and your significant other take the plunge into buying a NJ home.
1. Discuss Your Financing Expectations
Buying a home and paying for a mortgage can significantly impact your finances. You need to sit down with your partner to determine how much house you can realistically afford. To do this, you need to determine the cash you have on hand for closing costs, the down payment, and your forecasted monthly budget. How much income can you each reasonably put toward monthly housing costs? You should each have a good idea of each other's finances, including existing debt, credit scores, and other factors that could impact your ability to get approved for a loan.
2. Develop a Plan to Share Costs
Even if you plan on splitting costs 50/50, it can be worth it to devise a specific plan regarding all homeowner expenses. You will need to cover property taxes, HOA fees (if applicable), insurance, maintenance, utilities, and other household bills. It is easier to pay for shared household expenses with a joint bank account. Having a dedicated fund for homeowner expenses that each person contributes to can help you budget better and keep track of payments.
3. Determine the Lead Borrower
The biggest difference between buying a home as a married couple and buying a home unmarried is that you will probably be applying for mortgages as individuals, not as a financial unit. Some lenders will allow co-borrowers' finances to be included in the application. Most lenders, however, will only consider one individual's income and finances to determine the size and terms of a loan. The person with the strongest finances should apply as the lead borrower. You can decide who the strongest applicant would be by comparing credit scores, income, employment status and history, and debt-to-income ratio.
4. Sign a Cohabitation Agreement
A properly executed cohabitation agreement is a legally binding contract that can protect you and your partner in the event of a split. This agreement will detail the plan for the financing and payment of the property in the relationship. It will also describe the division of the property and other assets if a breakup occurs. It can include who owns the title/deed, the plan to share housing costs, buyout terms if the relationship ends, and a proposed plan to sell. You can also include terms on how to resolve potential future disputes. In order to be legally binding, this contract must be properly drafted and executed. For this reason, it is crucial to work closely with a real estate attorney to ensure both parties are adequately protected.
Purchasing a home as an unmarried couple isn't drastically different from homebuying as a married couple. Some special considerations exist, but proper planning and open communication can solve many of these complications. Veitengruber Law can help you and your partner reach your NJ real estate goals while protecting your investment.