First Comes Love, Then Comes Mortgage

In our favorite fairy tales, we learn that if we're very good-looking and very nice, we fall in love and money problems magically disappear. The prince plucks you from poverty or the genii sets you up for life. Unfortunately, in real life, you and your beloved may encounter issues and irritations when combining finances and buying a home. Here are some of the problems you might have to hash out.

Once upon a time
You've found Mr. / Miss Right, the Love of Your Life! It's time to announce your joy to all, to sing, to dance, to….buy a house ASAP! Really? Well, you say, prices and mortgage rates are in the rock-bottom range, and you want to nail down your dwelling while it's still affordable. That makes sense, but is it a good idea to purchase real estate together without the benefit of a marriage certificate?
It depends.

I do!
If your relationship is rock-solid, and both of you have respectable credit histories, buying a home now won't require any special magic. However, understand that unmarried, joint homebuyers are seldom granted automatic protection on the federal and state levels. You need to createyour own protection with the help of a fairy godmother, ahem, attorney. At a minimum, unmarried joint homebuyers should consider signing two separate binding agreements as part of their partnership and joint homeownership
  • A cohabitation agreement between both parties
  • A property agreement between both parties
This is the minimum recommendation. And don't cut corners by using forms from the Internet.  Hire an attorney to get it right.
I don't know….
If one partner's credit is evil, you might not be able to get loan approval as a couple. Lenders use the representative credit score of the partner with the worst credit for mortgage qualifying purposes. If your credit report is full of ogres and beasts, it doesn't matter that your fiancé manages her debts like a perfect princess. If only one of you takes on the mortgage obligation, don't think that you can just add the non-borrowing partner to the loan later – lenders require you to refinance to do that. Here are a few examples of the problems unmarried couples can face:
  1. Jeff has princely credit, while Katy's is the ugly result of too many glass slipper-buying binges and not enough income. He takes out a mortgage, putting up the entire down payment, and then adds Katy to the home's title as a co-owner. Sadly, they break up, and Jeff discovers that even though he has sole responsibility for the mortgage debt, Katy owns half of the house. He has to buy her out to keep the home.
  2. Emily and her fiancé David buy a condo together. They discover that they can get a much better mortgage rate by leaving David and his iffy credit off the mortgage application, but Emily adds him to the home's title after closing. However, David's unpaid taxes cause liens to be placed on their condo.She can't sell or refinance the property until David pays his back taxes.
  3. Steve's identity was stolen, and he's still trying to prove that most of the debts on his credit file aren't his. To buy the home he wants, he empties his savings and gives the down payment to his girlfriend Shelley, and she takes out the mortgage. They agree that he'll be added to the home's title once his credit problems are fixed. Now, however, Steve panics every time they have a serious disagreement, because he realizes that he has no rights to the home that he helped buy if they break up.
These are the scenarios likely to cause problems:
  • Unequal contributions by each partner toward the purchase
  • Only one partner obligated by the mortgage
  • Only one partner has title to the property
If any of these apply to you, it's even more critical that you have cohabitation and property agreements in place before you shop for a house. You need to sort out who pays what, the amount of equity each party is entitled to, and what happens if you dissolve your partnership or someone dies.

Happily ever after
When you close on your home purchase, you have a few choices for taking title to the property. Make sure that you both understand their implications and that you both agree about your ownership status.

Tenants in Common: You both own and have the right to live in the home. If one of you dies, that tenant’s ownership does not pass automatically to the other, unless stated in a will. Unless you specify otherwise, it's assumed that each owner has a 50 percent interest in the property.
Joint Tenants: Exactly the same as the above, except that you each have the “right of survivorship.” So, if one of you dies, that joint tenant’s interest automatically passes to the surviving joint tenant.
Sole and Separate: One of you owns the house, and the other doesn't. If you want it to stay that way when you get married (especially if you live in a community property state), have your new spouse record a quitclaim deed to give up any interest he or she would otherwise have.
When you buy a house together, experts say, it's best to head off potential problems while the relationship is harmonious, both parties are inclined to be fair, and communication is good. That's how you get your life as a couple off to a smart start and headed for a happy ending.
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