Financial Planning for Generation X & Y Women
 
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Expert Q&A Archive

04/30/2009
Should my boyfriend and I buy a house together?
My boyfriend and I live together and rent an apartment. Our lease will be over in a few months; we have talked with each other and decided that right now we would like to use the money that we have to buy a house together. Is this a bad idea since we are not married? We do plan on getting married; however we feel that right now as 1st time home buyers, with the market and tax credit, the best thing to do with our money is put it towards a home. Please let me know if we are not thinking correctly. Thank you for your time.
Sharon P. Hardy, CFE:
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From all the court cases and legal battles that I've read or heard about over the years that are a direct result of buying any type of property, when the two persons involved are not legally married, I am very much against doing this.

Once the contract is signed by one or more consenting adults who are purchasing property, it becomes legally binding. So I would submit that if the contract is signed prior to consummation of marriage, and the relationship between the two dissolves for whatever reason before the scheduled marriage, the contract will still be binding.
Beth Frazier:
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Yes, I believe you are thinking correctly; however, I would proceed with caution. Be sure you have enough savings (at least 6 months) and a few dollars set aside for the wedding. If you have those two things set aside, then yes, this is an excellent time to purchase a home.
Gary Silverman, CFP®:
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I'll let someone else deal with legal and tax issues, but I'd like to talk generally here. I had a friend of mine do exactly what you are thinking of doing. She and her boyfriend (and later, fiancé) were planning a life together and thought a house would be a great idea. They loved it, and it worked great for them...until. They ended up breaking up. Now imagine co-owning a house with someone you no longer like, but rather despise. Imagine that they no longer care to help with the house payments. And now imagine that in order to sell the house, you have to get their cooperation.

I know that you are different, and this will not happen to you. But if it did, what would you do about it? So, get the house, but make sure 1) you can afford it, 2) you can afford it without him, and 3) you talk with an attorney to get the paperwork done so that if you had to go your separate ways, you and your boyfriend's responsibilities are laid out. –Gary
Martha Fortune O'Brien:
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First, I do not believe it is wise to buy a house unless you are 100% certain you will be able to stay living in it for at least five years. You need to look at all that could cause you to move and decide to buy only if you are really sure you will not change your mind. Most people fall in love with their first home and want to spend a lot of money personalizing it, only to move in a couple of years. All that money is wasted because you move somewhere else and feel that you need to do it all over in the new place. You may have the discipline to restrict your spending to only those improvements that increase the value, like improving energy efficiency and structural soundness. A home that you will need to sell needs to stay in condition to sell. That means not making it an expression of your personality, but keeping it neutral and easy for anyone to imagine herself or himself living in.

Speaking from personal experience, I say only buy a house with someone if you have a very clear understanding regarding who pays what and how the house is deeded. There are different types of joint ownership. When things happen unexpectedly, like they always do, you need to know how the type of joint ownership you have will affect your rights and your obligations. Most couples do not earn the same amount of money or have the same resources to put into home ownership. There are costs for maintaining the outside, the inside, the land, the systems, etc. These are not the costs that are fun like painting and redecorating. I'm talking about pipes and water heaters and cracks in the foundation. Many costs come up unexpectedly, especially for those who have never owned a home before. If one is going to have less financial resources to put into the home, can they give more time and energy?

I believe the type of joint ownership should reflect your values. Does the one contributing less money have the same ownership position as the one contributing more money? The ownership can be expressed in percentages. On the other hand you may feel that the intangible contributions of the one contributing less money are of significant value and that the ownership should be equal in order to express the value of the care and time that is given instead of money. I hope this helps.
Lourdes Sampera-Tsukada:
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Excellent question! Your thoughts are excellent! With all of the incentives available to all first-time homebuyers, pricing of real estate down, low rates, these are the times to be looking at what is available around your area/state. My recommendation is to first sit down with a mortgage banker and get approved. You next question both being single as a hesitation for applying for a home loan. This, in general terms and without having all of the details (i.e. credit history, income, debts), should not be a reason for hesitation for you both to contact a lender.

By sitting down with a lender, he or she will provide you both with an idea of the amount you both may qualify for, based on what you both have agreed to as a comfortable monthly payment.

In addition to learning about the process, this enables you both to look at all of the costs related to purchase of a home. The lender will then provide you both with an “Approval Letter. “ This letter is a confirmation for any realtor you work with that you are a “Qualified Buyer”. Have fun in researching your neighborhoods and looking at all of the real estate available within the approved amounts!!
Kim Nourie, CFP, CPA:
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Dear Wi$eUp Reader: You are bringing up some important issues to consider before making such a large financial commitment. Here are some thoughts to consider:

1) The savings from an initial tax credit could ultimately be lost due to expenses incurred in the event your relationship ends.
2) If you decide to pursue buying a home with a non-spouse, you should carefully consider the following:
a. Could you afford to buy the house on your own and/or pay for the entire mortgage, insurance, property taxes and maintenance on your own in the event your relationship does not last?
b. If your relationship ends, who keeps the house, or will you have to sell the house? If you were forced into selling the house in less than three years, there is a credit recapture. Additionally, there is a credit recapture if the home ceases to be your primary residence for the first 36 months. Plus, if you had to list the house with a real estate broker, the sales commission will further reduce your net sales proceeds.
c. If the answer to “b” above is that one person keeps the house, you should consider having a written agreement detailing all of the specifics as to how one of you sells his/her half of the house to the other one. How will you price the sale? Who pays for the cost of refinancing into one name? If you don’t refinance the mortgage, both of you would remain responsible for it, and timely payments or lack thereof will impact both or your credit histories.
3) Be aware that the two of you must pro-rate the available credit between each of you. You both are not able to take a full credit. Also, ensure your income range and new homebuyer status meet the criteria in the stimulus bill.

I would also recommend you speak with a tax professional to make sure you understand all aspects of the tax credit, plus it would we wise to have an attorney draft the agreement between the two of you. Since you are not married, you should consider viewing this potential purchase as a business transaction. Good luck to both of you on your relationship and with this important decision.
Connie K. Marmet:
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Only you know about the relationship. If you do decide to buy before you marry, be sure to have a contract that spells out in advance what happens if the relationship doesn't last. Use a lawyer. The investment will be worth it. It's a business transaction.
Gail V. Marquet:
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It's rarely a good thing to buy a house together unless you are married. When, not if, the situation changes and one of you wants to end the relationship, it gets very sticky. If you do decide to go ahead, I would suggest you consult a lawyer and have an agreement drawn up that spells out exactly the financial terms for the disposition of house and any equity resulting from its sale.

Rosemary Ervin, CPA:
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This is an excellent time for a first time homebuyer if you have enough money for a down payment. It is a buyer's market, meaning that the buyer has lots of choices and the seller is limited to buyers who have lots of other options.

Is this a bad idea since we are not married????? Can either of you afford the mortgage without the other's paycheck? Do you have a plan for one to buy the other out if you decide to split? Worst case
scenario---you split up, one moves out, and the market is a "buyers" market. Now you are a seller. Can you get your asking price?

There are lots of "what if's" you need to address. You already know that it may not be a good idea because you are not married. You know it is a good time to buy and you want to purchase together. Unfortunately,
you are not committed to marriage at this time. Maybe everything will work out and you will be glad you bought during the current market. But--what if things do not work out so well? Good luck.
Jennifer Lane:
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Buying a home is a great idea so long as you're there long enough to break even over renting. Talk to a lawyer about the best way to own the home and make sure you have a partnership agreement that outlines what happens if you break up. Not fun to think about, but a home is a huge investment. It's worth doing everything right. Good luck.
Michael A. Masiello:
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A couple of things to consider; first, evaluate worst case situation, you don't get married. What will you do with the house? Develop a strategy for this with agreements before you pursue.

I suggest you talk to an attorney to discuss the various ways you can purchase the house together, “jointly”, or “tenants in common”. Also, ask how to protect each other, again if it goes wrong. Good fences make good neighbors; know what you are getting into beforehand. The mortgage company may require each of you to sign for the entire debt regardless of marital status. Also, discuss with a CPA and each other [about] how you would utilize the credit, if available.

From a financial situation my best suggestion is to have full disclosure on your options and alternatives before you enter into this purchase and understand your agreed upon strategy to unwind it if it goes bad. Good luck, Mike
Frank Wells:
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I recommend you seek the counsel of a Godly person near you. The issues you raise combine financial, emotional, spiritual and physical areas. This is not a quick "do or don't" answer. Also, www.Crown.org has many resources to answer many of your questions.
Rebecca Schreiber CFP®:
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Owning a home can be a very rewarding experience as long as you go into it with your eyes open. When purchasing a home with someone who is not a spouse, make sure you title the property in line with your personal goals. [For instance] if one of the owners dies, the wording in the title could be the difference between the second owner being able to stay in the house, or having the home sold out from under them. This is decided when signing the mortgage paperwork so pay special attention to mention of the title.

Second, keep tabs on each person's expenses. How much do you each expect to pay towards household expenses? Who will get the tax deduction for the mortgage interest? To be sure that each person is benefitting equally from the investment keep track of monthly expenses.

Third, only purchase a home if you plan to keep it for at least five years. If either of you are willing to relocate at a moment's notice, or may need to due to the economy, make sure the other person could afford to keep the property. Check the local rental market to see how much you could charge for rent if you chose to turn it into an investment property. Good luck
 

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