Should you buy a house with someone if you're not married?
Here's what to consider before you do the deed.
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A year into their relationship, Gwen Merz and her boyfriend brought up the big question. No, not “Will you marry me?” Rather: “Would you like to purchase a home with me?” Truth be told, for some millennials, the thought of going in on a house together can be more thrilling than the sound of wedding bells.
The pair were tired of living in their respective apartments. “With the pandemic, we realized the value of having space, which was in very short supply for us both,” the 30-year-old IT professional says. In March 2021, Merz and her partner closed on a spacious five-bedroom, four-bathroom, 2,500-square-foot house in the suburbs of Saint Louis, Missouri.
For unmarried couples who are looking to buy a house together, there’s lots to know before jumping in. We’ll explore some questions to get answers to, and the pros and cons of buying, maintaining, and even selling down the line. Let’s dig in.
First, how does homeownership fit into the big picture?
It may seem obvious, but you should only pursue this step if you openly talk about your finances. Make sure you’re on the same page before you even start looking for a home—and we’re not just talking about the number of bedrooms or size of the backyard.
“Love is wonderful, but that's not enough sometimes,” Merz says. “Go over current listings and mock up budgets to see if you can afford the house and upkeep before you start the frenzied process. Make sure to have those tough conversations ahead of time, and don't make any assumptions.”
Real estate professionals like Alexander Lerner agree. Whether you’re married, partnered but yet to wed, or going in on a house as two friends, it’s important to understand how homeownership fits into your goals—both financially and personally.
“I would ask an unmarried couple the same things I would ask a married couple,” says Lerner, a Los Angeles Realtor at Figure 8 Realty. “What are your plans? What are your goals? What are you trying to accomplish with this house purchase?”
And while online real estate platforms make it easier than ever to hunt for a house, Lerner recommends consulting with a real estate agent and CPA about your personal situation.
Tyler A. Dolan, a certified financial planner and vice president of Keenan Financial, adds that it's a good idea to hire an attorney to make sure all agreements are clear and documented. “No matter what the situation, it's always important to have a plan in the event something doesn't work out between you.”
Who’s applying for the mortgage?
When applying for a mortgage, your marital status plays no part. It boils down to the strength of your finances, explains Mike Carpenter, a mortgage loan originator based in Seattle, Washington.
“You might bring a partner in for their credit rating or their ability to add income to the equation,” says Carpenter, the founder of Mike the Money Man. Your debt-to-income ratio is another factor. So if one partner has a lighter debt load than the other, it may be beneficial to buy a house together to increase the chances of more favorable terms and rates.
On the flip side, if one partner has some blemishes on their credit report, it could bring down your financial profiles, Carpenter points out.
“If I’m faced with a one borrower with a lower-than-average credit score and they have a lot of debt, it might make more sense to leave them out of the approval process because they can qualify for a higher mortgage amount.” Keep in mind that in this scenario, they would be off the title of the house.
Who holds the title?
Homeownership is indicated on the title deed—not by whose name is on the mortgage. And you’re not necessarily responsible for payments simply because your name is listed on the deed.
That said, here are the main ways ownership is designated:
Sole ownership: One person holds the title and doesn’t need permission from another person to authorize a transaction, or to make a major decision such as refinancing a home.
Community property: Each spouse owns everything 50-50, no matter how much income they rake in or how much they spent on the home. They’re equally responsible for half of the debt. Currently, nine states in the U.S. are community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington.
Joint tenancy: Two or more individuals are joint owners and have equal rights to the property. Should one partner die, ownership is passed to the surviving partner. When it comes to refinancing or selling the home, all owners need to approve the transaction. And if one partner incurs debt and a court goes after their assets, it can force a sale of the home.
Tenancy in common: Two or more parties own a TIC property, and the percentage of ownership may be of different proportions. For instance, a 50-50, 60-40, or 25-75 split. This differs from joint tenancy as each partner holds an individual title to their portion of the property.
Your first instinct may be to own the property 50-50, Dolan says. But here’s where you want to revisit the big picture. Sometimes—if it works out financially—it may make sense to have one party own the property and take on the mortgage to leave future doors open.
“For example, the other partner may be able to qualify for a loan on a vacation property, or work toward another financial goal,” Dolan says. “If each partner owned the original property 50-50, it may be more difficult to attain approval for another opportunity should it come along.”
Bottom line: Think about what you want in the future, too.
What if you were to refinance the home?
The property deed and the mortgage holder can come into play further down the line, too. Let’s say you buy a house together while unmarried, then later decide to tie the knot. If you want to refinance your home, both partners have to agree to it. And because they have ownership in the property, they’ll need to sign a consent form, Carpenter explains. “If you were married and lived in a community property state, even if one partner bought the house, both people would be on the deed.”
What are the tax implications?
When it comes to mortgage interest, the IRS currently allows married couples who file taxes jointly to deduct the first $750,000. That number drops to $350,000 if they’re married and file separately.
But as a single tax filer, you’re only eligible to claim mortgage interest and property tax deductions for the portion of those expenses you paid directly to the lender, Dolan explains, offering the following examples:
Let’s say one partner, Thelma, owns the home and their name is on the mortgage. But their partner, Louise, gives them 50% of the costs. Even though Louise financially contributes, they won’t be able to deduct the mortgage interest or property taxes, as Thelma technically has the ownership and mortgage in their name as far as the IRS is concerned.
In a different scenario, each unmarried partner is on the mortgage and property tax bills. They can each take 50% of the mortgage interest and property taxes as a deduction on their individual tax returns.
There are also ramifications if you ever decide to sell, as the capital gains tax would only appear on the legal homeowner’s return, Dolan says.
Keep in mind, at the moment there’s a $250,000 capital gains exclusion on the sale of a home for single tax filers, and that number is bumped up to $500,000 for those who file jointly. Dolan explains: “If you bought a condo for $250,000, and the condo is sold for $500,000, that entire capital gain may be excluded for a single filer. Unmarried co-owners can use the capital gains exclusion for their share of any capital gains.”
What’s the plan for maintenance and repairs?
Sorting out the big-picture details is important. But don’t forget about the day-to-day stuff, like when an appliance breaks or you have to pay a professional to repave the driveway. Figure out who will be tasked with various duties in advance.
“I’m the handy one in the relationship,” Merz says, “so I expect to do more of the labor of repairs since I have previous experience and he doesn't—although he’s willing to learn.”
Your partner may feel more comfortable leading the charge to vet plumbers, electricians, and other pros for jobs you either can’t or don’t want to tend to on your own.
Then, there’s the actual budgeting. Prepare to set aside at least 1% to 2% of the value of your home. A home worth $300,000 may need $3,000 to $6,000 for annual upkeep. If your home is valued at $500,000, that’s $5,000 to $10,000.
Merz and her partner seeded a high-yield savings account with about $15,000, and decided to split these costs as fairly as they could. They plan to add $4,000 a year, and as they plan to merge their finances, that amount will come from their combined budget.