Buying A House Before Marriage: Pros And Cons Of This Rising Trend

In 1980, an unlikely trio consisting of an unmarried couple and a divorcee made news by applying for a mortgage together. A local loan officer said that if the trio had tried to buy a home together in the previous decade, “Everybody's chin would have dropped on their chests.”¹ Today, buying a house before marriage is on the rise.

Unmarried couples buying homes have risen from 8% to 9% from 2013² to 2021, and the largest percentage of unmarried couples are Gen Z/millennials ages 22 – 30.³ As more and more choose to buy a home before marriage, the question arises: Is it a good idea?

Overall, buying a house before marriage can help you build equity sooner and possibly save on expensive rent prices. However, the commitment may cause relationship strains over finances or responsibilities. Keep reading to learn more about the pros and cons of buying a home unmarried and see if it could be the right choice for you.

Pros And Cons Of Buying A House When Not Married

The thought of buying a home is exciting for anyone, married or single. But is it a good idea? Many of the pros and cons of buying a home will be applicable whether or not you are married. However, buying a house before marriage does present some unique advantages and disadvantages. If you’re considering buying a home with your partner before tying the knot, be sure to consider the following points.

Pros:

• Possibly save rent money: Rent can be expensive, and prices increase between 3% – 5% yearly on average.⁴ Not only that, but living separately means two rent payments. Combining your living costs in one shared mortgage could save you hundreds of dollars a month.
• Build equity sooner: If you already know you want to stay with your partner long term, getting into a home sooner means you can start building equity sooner. After all, the longer you wait, the more likely home prices are to increase.
• Sense of independence: Whether you’re moving out for the first time or have been living on your own for a while, buying a home can bring a worthwhile sense of independence. It’s a life milestone many look forward to.
• Co-signer could help with preapproval: If you decide to move forward with a joint application, having your partner co-sign could help with preapproval. Additional income can help you qualify for your mortgage with a lower rate.
• Dual income to split utilities: By moving into a home together, not only can you split your monthly payments, but you can also split utilities. Saving on living costs can be a smart financial decision.
• Split household responsibilities: Chores like cooking or cleaning can be time-consuming. By moving into a home together, you can split household responsibilities so you both wind up saving valuable time.

Cons:

• Financial entanglement: Getting a mortgage with your partner can put a financial strain on the relationship, as money issues are often a top cause of arguments.⁵ Before combining your finances in this way, make sure you’ve talked in-depth about both of your financial habits and opinions about money.
• Time commitment: Many mortgages are 30-year commitments, and financial experts recommend staying in a home for at least 5 years before selling.⁶ This time commitment may be problematic if the relationship goes south.
• Missed tax benefits: Married couples receive several tax benefits you may miss out on if you file as single. For example, married couples filing jointly can deduct up to $10,000 of property taxes, while singles can only deduct up to $5,000.
• No protocol for equitable division: If the relationship doesn’t last, married individuals may have more legal protection. Laws require equitable division of assets during a divorce, but few laws exist for non-married couples who break up.
• Relationship strains: Getting a home together may cause relationship strains for countless reasons. For example, if one person always turns the lights off and the other never does, increased utility costs could be a point of conflict. Problems can also arise if one person feels they do an unfair share of household chores.
• Possible missed equity for one partner: If a couple buys a home together but only one is on the mortgage and title, one person may miss out on equity. Contributing to monthly mortgage payments without the security of being on the title can lead to contempt.

How To Buy A House With Multiple Owners

In terms of qualifying for a mortgage, buying a home with multiple owners is nearly identical to buying a home with only a single owner. Marital status does not affect your ability to qualify for a mortgage. Your qualification – whether married, unmarried or single – will depend on your income, credit and assets.

The only real differences when buying a house with multiple owners are mortgage applications and property rights. You can choose to file your mortgage jointly or singly, both of which come with advantages and disadvantages. You can divide property rights however you see fit, whether or not you file a single or joint application.

Single Application

In a single application, qualifying for and repaying the mortgage will rest with one person. This means only one person’s income, debts, credit and assets will matter, and the ultimate financial obligation will fall on them.

Pros of a single application:

• If your credit score is significantly higher than your partner’s, you may qualify for a better interest rate.
• If your partner’s financial history has pitfalls like bankruptcy, they won’t be considered.
• If your partner can’t show a steady income history or has gaps of unemployment, they won’t be considered.
• If you have substantially lower debt than your partner, only your debt-to-income (DTI) ratio will matter. This may help you qualify for a higher mortgage.

Cons of a single application:

• Only one income can be considered, which may reduce the amount you qualify for if your partner’s income is substantial.
• If you have significant debts, your partner's income cannot be used to help offset the debt-to-income ratio for the application.

Joint Application

In a joint application, qualifying for and repaying the mortgage will fall on both individuals. This means all income, debts, credit and assets will affect the mortgage application. Both individuals will be held financially responsible for repaying the lender. 

Pros of a joint application:

• If both credit scores are similar and meet qualifying thresholds, there won’t be negative consequences for the application.
• If neither partner’s financial history has pitfalls like bankruptcy, there won’t be negative consequences for the application.
• If your combined debt-to-income ratio is lower than if one person files on their own, you may qualify for better interest rates and a higher mortgage.
• Both incomes will be considered, which can help you qualify for a higher mortgage.

Cons of a joint application:

• The lender will base decisions on the lower credit score, which could create problems qualifying for the mortgage.
• If one credit score is significantly lower, the interest rate may end up higher.

How To Buy A House With Multiple Owners

In terms of qualifying for a mortgage, buying a home with multiple owners is nearly identical to buying a home with only a single owner. Marital status does not affect your ability to qualify for a mortgage. Your qualification – whether married, unmarried or single – will depend on your income, credit and assets.

The only real differences when buying a house with multiple owners are mortgage applications and property rights. You can choose to file your mortgage jointly or singly, both of which come with advantages and disadvantages. You can divide property rights however you see fit, whether or not you file a single or joint application.

Single Application

In a single application, qualifying for and repaying the mortgage will rest with one person. This means only one person’s income, debts, credit and assets will matter, and the ultimate financial obligation will fall on them. 

Pros of a single application:

• If your credit score is significantly higher than your partner’s, you may qualify for a better interest rate.
• If your partner’s financial history has pitfalls like bankruptcy, they won’t be considered.
• If your partner can’t show a steady income history or has gaps of unemployment, they won’t be considered.
• If you have substantially lower debt than your partner, only your debt-to-income (DTI) ratio will matter. This may help you qualify for a higher mortgage.

Cons of a single application:

• Only one income can be considered, which may reduce the amount you qualify for if your partner’s income is substantial.
• If you have significant debts, your partner's income cannot be used to help offset the debt-to-income ratio for the application.

Joint Application

In a joint application, qualifying for and repaying the mortgage will fall on both individuals. This means all income, debts, credit and assets will affect the mortgage application. Both individuals will be held financially responsible for repaying the lender.  

Pros of a joint application:

• If both credit scores are similar and meet qualifying thresholds, there won’t be negative consequences for the application.
• If neither partner’s financial history has pitfalls like bankruptcy, there won’t be negative consequences for the application.
• If your combined debt-to-income ratio is lower than if one person files on their own, you may qualify for better interest rates and a higher mortgage.
• Both incomes will be considered, which can help you qualify for a higher mortgage.

Cons of a joint application:

• The lender will base decisions on the lower credit score, which could create problems qualifying for the mortgage.
• If one credit score is significantly lower, the interest rate may end up higher.

How Do Unmarried Couples’ Property Rights Work?

The mortgage application is separate from property rights. So, whether you file jointly or singly, you can still hold the title however you see fit. This means you can choose to have one person on the title or both. When recording your title as an unmarried couple, you can split property rights in one of the following ways. 

Sole Ownership 

Under sole ownership, only one person will be on the title and retain rights to the property. If a married couple opts for sole ownership, the non-owning spouse is often required to legally renounce property rights by signing a quitclaim deed. If an unmarried couple opts for sole ownership, this is not necessary.

Pros: Transactions like selling the home or refinancing are easily accomplished, as there won’t be friction from dissenting opinions. If one person in the relationship does not want the financial obligation of homeownership, they don’t need to be legally tied to it. 

Cons: If the sole owner dies without placing the home in a will, transferring property can be extremely difficult. It must go to probate, which can be lengthy and frustrating for surviving partners. Additionally, even if both individuals in the partnership contribute to monthly mortgage payments, only one will be building equity.

Joint Tenancy

Under joint tenancy, two or more individuals are on the title. All parties receive equal rights and shares in the property’s equity. In the event of death, ownership automatically passes to the surviving co-owner(s).

Pros: The financial burden is shared equally, and all parties build equity. In the event of death, there is no need to go to probate – ownership is automatically transferred to the surviving co-owner(s).

Cons: Any transactions like refinancing or selling must be approved by all parties. The property may not be willed to an external party, as ownership automatically passes to the surviving co-owner(s). Additionally, if one party faces legal judgment for debt collection, a creditor can petition the court to force a home sale in order to pay the debt. 

Tenancy in Common 

Under tenancy in common, two or more individuals can have a vested financial interest in the home, although it does not need to be equal. Each party individually holds the title for a portion of the home. For example, one partner may own 60% of the home, and the other could own 40%. Each individual could transfer their individual title to anyone they choose, who would then own either 60% or 40%, respectively.

This type of ownership refers only to financial gain, and not to living space. With tenancy in common, both parties have equal rights to habitat the entire home.

Pros: If one partner pays more on the monthly mortgage, equity can be divided accordingly. Each party can use their portion of wealth from the property however they see fit. Individuals face no threat to their portion if a creditor places a lien on another owner’s portion. Since each party holds their own title, transfer of ownership is simpler than in a joint tenancy.

Cons: Automatic survivor rights are not in place, so if one party dies, their portion of the home will face the same lengthy probate process as a sole ownership property would. All parties are liable for debts associated with the property, so if one party does not pay their share of property taxes, for example, the other parties would be financially responsible.  

Getting A Cohabitation Agreement

You may have heard of this real estate term, but what does it mean? A cohabitation agreement outlines key financial and legal considerations for an unmarried couple living together. Although it may be hard to think about, a cohabitation agreement can protect you if the relationship ends. While married couples are legally entitled to the equitable division of assets, unmarried couples are not. A cohabitation agreement can give you a legal safety net.

It’s best to draft up a cohabitation agreement early on before difficult emotions may affect tough decisions. Ask a real estate attorney to help you craft an agreement suitable for your situation. Here are a few considerations you may want to include:

• Who is financially responsible for what (property tax, mortgage payments, HOA, homeowners insurance, utilities, repairs etc.)?
• In the event of separation, what will happen to the property? Will it be sold or can one party buy out the other?
• If the property is sold, how will profits be divided between the couple?

Tax Implications When Buying A Home Before Marriage

Typically, married couples benefit more than unmarried couples from a tax standpoint. This isn’t always the case, but it is likely. If you’re buying a home as an unmarried couple, consider the following tax implications.

Mortgage Interest Deduction

Singles and married couples filing jointly can deduct interest up to $750,000 in mortgage debt. Married couples filing singly can deduct up to $375,000 each, which puts them on equal footing. However, the IRS only allows one homeowner to claim a deduction if unmarried. So, if both partners in an unmarried couple want to itemize deductions rather than take the standard deduction, one will be out of luck. 

Capital Gains Taxes

When you sell your home and make a profit, you’re required to pay taxes on that profit (called capital gains). The IRS allows you to deduct $250,000 in capital gains as a single person or $500,000 as a married couple. This means if you buy your home for $350,000 and sell for $650,000, you’ll pay capital gains taxes on $50,000 as an unmarried couple or none if you’re married.

Additionally, just like only one homeowner can claim itemized mortgage interest deductions, only one homeowner can use this capital gains deduction. This means if you sell your home while unmarried, only one partner can use this deduction. The other partner will unfortunately miss out on this tax benefit.

Standard Vs. Itemized Deductions

As of 2018, married couples need to have more than $24,000 in deductions to make itemizing worthwhile.⁷ Individuals need more than $12,000 (or $18,000 if filing as head of household). In this tax scenario, married couples and unmarried couples are on relatively equal footing. 

An unmarried couple may receive a higher benefit than a married couple filing jointly if their combined deductions exceed $24,000. For example, if one partner itemizes $14,000 in deductions and the other takes the standard $12,000 deduction, the couple would take a combined $26,000 in deductions. Married couples filing singly can benefit from this scenario as well.

FAQs: Buying A House Before Marriage

If you’d like to buy a home before marriage, you may find yourself contemplating the following questions.

Should Both Partners Be On House Title?

Whether or not you want both partners on the house title is a personal decision. If only one person is on the mortgage application and makes all the payments, it may be best to have the title in only their name. However, if both parties are contributing financially to the property, it may be best to have both partners hold title, either through joint tenancy or tenancy in common.

Other than financial contributions, transfer of ownership considerations could also determine how you want to hold the title. If you want to will the property to a third party, it may be best to have one person hold title or to have both parties hold title through tenancy in common.

What Happens To Property Owned Before Marriage? 

Any property acquired by one person before marriage is generally considered separate property. In case of divorce, the property usually returns to the original owner.

Property acquired before marriage as an unmarried couple may or may not be considered joint property. This depends on how the title is held. If the property acquired before marriage held title through sole ownership, it usually remains the property of the original owner; in joint tenancy, both partners have equal rights to the house; for tenancy in common, both partners have rights to a percentage of the home that may or may not be equal.

Married couples who divorce have legal rights to an equitable division of assets. Unmarried couples do not have these same rights, so even if you hold title in a joint tenancy, it’s a good idea to get a cohabitation agreement. This agreement can outline what happens to the property in case of separation. 

Who Gets The House When An Unmarried Couple Splits Up?

When an unmarried couple splits up, there are generally two courses of action: 

1. Go to court
2. Come to a decision together

In court, the decision will depend on a number of factors, including how the title is held. Often the resolution involves selling the property and dividing profits accordingly. If a cohabitation agreement exists that outlines who gets the house in case of a breakup, it would be followed.

If you’ve considered the pros and cons and are ready to buy a home together, it’s time to start thinking about your home buying plan. Check out today’s rates, compare home loan options and find a great REALTOR^Ⓡ. Happy house hunting!

Sources:

1. Washington Post
2. NAR Generational Trends Report 2013
3. NAR Generational Trends Report 2021
4. Million Acres
5. Mindbodygreen
6. Orchard
7. ValuePenguin