If you’re unmarried and interested in owning a house, the idea of buying one with a romantic partner or a friend has probably crossed your mind.
In the past decade, the median price of an American home rose by 27.5 percent, and prices are predicted to continue rising at twice the rate of inflation and wage growth. For most first-time home buyers, affording a down payment or a mortgage on their own is not financially feasible, which might be why unmarried duos are becoming a larger portion of home buyers. According to data from the National Association of Realtors, 15 percent of millennial home buyers are buying in unmarried partnerships, and 8 percent of all home buyers are unmarried partners.
Whether you’ve already decided to buy a house with someone else or are just exploring the idea of co-ownership, here are a few conversations you’ll want to make sure you have before signing those purchase papers.
How will you divide ownership and equity? Who will hold the mortgage?
This is probably the first and most important conversation you should have when you’re negotiating co-ownership. While most people assume that the financial burden is always divided evenly in co-ownership arrangements, that isn’t true in every case. In some scenarios, one person contributes the entire down payment, or loans the other person their half of the down payment. Additionally, co-owners with significantly different incomes might split the costs based on their income ratio.
Christina Cranston and a friend, both flight attendants for a major airline, worked and traveled together for years before moving in together. After being roommates for a year, they decided to buy a house. “I would describe our relationship as sisters,” Ms. Cranston said.
Their decision was a primarily financial one — together they could buy a nicer house than either could afford on her own — but it was also emotional. They both appreciated the benefits of co-ownership: There was someone with whom to share decisions and financial risk.
However, their finances weren’t as straightforward. Ms. Cranston was able to sell a condominium and use the proceeds as the down payment. They ultimately decided that Ms. Cranston would initially be the sole owner of the property, with the expectation that they would adjust the financial terms in the future. Regardless of the financial details, the two women treat the home as an equal co-ownership arrangement and jointly make all the decisions about repairs, improvements and household rules.
How will you handle household repairs, upgrades and labor?
As tempting as it might be to focus on buying a house, make sure to talk about what it will be like to actually live in the house together.
Frederick Hertz is a lawyer and mediator in the San Francisco Bay Area who specializes in creating housing agreements to help nonromantic co-owners and unmarried couples navigate the co-ownership process. He said that as home prices in the Bay Area have skyrocketed, nontraditional living arrangements have become more common.
In his initial meeting with hopeful home buyers, Mr. Hertz begins with this warning: “If you can’t make it through a two-hour meeting with me discussing the issues, then you shouldn’t be buying a house together.” The idea isn’t to discourage them, it’s to initiate them into their new role as co-owners, a role that will most likely involve long discussions, complex negotiations and emotionally challenging conversations. The kind of questions that Mr. Hertz asks range from the morbid (What happens if one of you dies?) and the aesthetic (How will you make decisions about paint colors and other decorative improvements?) to the familial (How long is a houseguest allowed to stay?).
Some topics to cover are space allocation (Does someone get to have a home office? Does one person get exclusive use of the garage?), landscaping and yardwork (Is one person in charge of the labor and the other person in charge of the cost? Who gets to decide how much to spend on that birdbath?), upgrades and repairs (If somebody tiles the bathroom, do they get reimbursed for their labor? What happens if the furnace breaks and only one person can afford the repair bill?) and rules for houseguests. This is especially important if you’re considering buying a house with a friend who is not a romantic partner. When will a boyfriend or girlfriend stop being an overnight guest and start being treated as a roommate? Are aging family members welcome to live with you? What about children?
These conversations might seem unnecessarily granular but the result is that you and your prospective co-owner will become comfortable discussing difficult topics. “Very few people are self-aware enough to know how they’ll behave as co-owners.” Mr. Hertz said. “Sometimes the best outcome is for both parties to realize they are not a good match as co-owners.”
What happens if the relationship or friendship ends?
Allegra Brantly, 32, an entrepreneur from Austin, Tex., had been dating her boyfriend, Jake, 28, a data scientist, for over a year when they started talking about buying a house together. They had watched housing prices in Austin creep higher as housing prices hit record highs in 2017 and again in 2018.
“We definitely weren’t ready to talk marriage or forever, but we also realized that by the time we were ready to buy a home together, we wouldn’t be able to afford it.” Ms. Brantly said. “The risk of splitting up seemed less than the risk of being out-priced.”
Before they agreed to buy a house together, the couple discussed potential outcomes at length, like what would happen if one of them lost their job and couldn’t contribute to the mortgage payments, or if they broke up. They eventually decided that if their relationship ended, they would both move out and keep the property as an investment, with a property manager doing the day-to-day management.
“Obviously we hope to stay together happily for years, but at the end of the day, our house is an investment and a financial decision, and so no matter what happens with our relationship, we want to preserve our equity.”
Tiffany Elkins, a Portland, Ore. lawyer who specializes in real estate litigation, said that the conversation about the relationship ending needs to go one step further: what happens if one of the co-owners dies? Whether the other co-owner inherits the deceased owner’s portion of the property automatically by law depends entirely on what the deed says and that decision generally needs to be made at the time of purchase, or otherwise in a will or written agreement.
Ms. Elkins made the point that unmarried buyers often assume that whatever they put in their co-ownership agreement is legally valid, without actually checking the laws in their state. Ms. Elkins gave the example of a couple for whom she recently drafted an agreement. In this scenario, one woman paid for the house and the other woman was going to pay her back. Ms. Elkins warned that even though their co-ownership agreement specified that if they broke up, the funds should be distributed based what they each contributed to the property, the court in Oregon might see it differently.
“If they start co-mingling funds and sharing assets, then the court can regard them as being in a common law domestic partnership, and can disregard the co-ownership agreement,” she said. At that point, any equity in the property potentially could be treated as a shared asset and be divided evenly, regardless of who paid for it.
How formal do you want your co-ownership agreement to be?
Co-ownership agreements range in levels of formality. Some co-owners prefer an informal agreement, such as a verbal agreement or a handwritten agreement that they both sign. Others prefer to work with a mediator like Mr. Hertz. The most formal — and expensive — option would require each owner to hire a lawyer and go through a negotiation process much like a prenuptial agreement. Ms. Brantly and her boyfriend ended up downloading an online template and adjusting it to meet the details of their agreement.
Ms. Elkins said that the money saved by creating a co-ownership agreement yourself is often not worth the money spent if something goes wrong between you and your co-owner. “If you don’t do it right and you have to clean it up later, you’re spending ten times the amount of money.”
Mr. Hertz stressed the importance of making sure the agreement is legally binding. “The difference is that the rules are dramatically different if you’re married or unmarried,” he said. “Whether you’re married or unmarried, you can reach an agreement with the same rules. But if you fail to have a legally binding agreement, the law will impose a very different set of rules.”
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