An increasing number of couples are choosing to purchase homes together before getting married. According to a 2022 report by the National Association of Realtors (NAR), unmarried couples now make up 18% of all first-time homebuyers, a significant increase from just 4% in 1985. The NAR conducted a survey and received 4,854 responses from homebuyers who bought a primary residence between July 2021 and June 2022.
Jessica Lautz, the Vice President of Research at NAR, stated that unmarried couples as homebuyers are currently at their highest recorded point. While buying a house is a bigger commitment than renting, there are several factors that unmarried couples should consider before purchasing a property together.
Housing affordability is a major challenge for many young, unmarried couples who often live together for financial reasons. The cost of housing can be a significant portion of their budget, and pooling their finances makes sense in order to move forward with a home purchase. The NAR report found that 46% of unmarried homebuyers made financial sacrifices, such as taking on secondary jobs, to finance their purchase.
The typical unmarried couple buying a home together for the first time is around 32 years old, part of the millennial generation, with a combined average household income of $72,500. Compared to married couples, unmarried couples are more likely to receive loans (4% versus 3%) and be gifted money from friends and family (12% versus 7%).
One reason why unmarried couples choose to buy homes together is the advantage of combining their resources to qualify for financing, especially considering the high real estate prices and interest rates. Melissa Cohn, regional vice president of William Raveis Mortgage in New York, noted that not everyone chooses to get married automatically these days, as there can be various reasons why people prefer to keep their estates separate.
However, it is important for unmarried couples to approach such a commitment carefully, as there may be no legal protections to fall back on. If one person decides to leave, the other can be burdened with the entire mortgage and may struggle to afford it. Unmarried couples should consider how they title the property to protect their investments. Consulting with an attorney about options such as joint tenancy with rights of survivorship or tenancy in common is recommended. Couples could also consider using a limited liability corporation (LLC) or another entity to clearly define responsibilities and ownership.
To safeguard their share of investments, unmarried couples should consider outlining them in a property agreement. This agreement would specify who is responsible for the mortgage, down payment contributions, insurance, and home repairs. This is particularly important if there is a significant income disparity between the individuals.
Certified financial planner Cathy Curtis suggests that unmarried couples carefully weigh the option of tapping into retirement accounts for a down payment. While it is generally not advisable to withdraw from retirement funds, millennials have more time to recover. Traditional IRAs can be used for a first-time home purchase, up to a lifetime limit of $10,000, with ordinary tax rates applied in the year of withdrawal. Roth IRAs have specific rules that must be followed, but typically allow for penalty-free withdrawals of contributions.
It is also crucial for unmarried couples to review their credit reports and scores to ensure they receive the best mortgage rate possible. Paying bills on time, reducing debt levels, and avoiding large purchases or new lines of credit are important steps to maintain good credit.
Finally, unmarried couples should consider saving their down payment in a high-yield savings account to protect against potential market downturns. High-yield savings accounts provide a stable and secure way to save for a home purchase.
Overall, unmarried couples should carefully navigate the process of purchasing a home together, considering legal protections, financial implications, and long-term plans.
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