This is a question Baby Boomers didn’t face: it wasn’t considered an option! You got married, used a VA loan and/or saved for a down payment, bought a home, then had children. Today, millennials, GenXers, GenYers, etc., deploy their own sequence to suit their individual circumstances and wishes. Previous sociological taboos have vanished, and economic circumstances have forced a rethinking of priorities.
First of all, more and more Americans choose to live with their significant others in un-wedded bliss. The number of cohabiting adults in the U.S. has increased significantly in recent years. Some 18 million unwed couples shared the same residence in 2016, a 29 percent increase from 14 million in 2007, according to the U.S. Census Bureau. It’s not just for younger folks, either. While half of unmarried couples who live together are younger than 35, almost a quarter, 23 percent, are 50 or older, according to a Pew Research Center analysis of the Current Population Survey.
Secondly, a number of factors are motivating cohabitating couples to consider home ownership:
- If living together in an apartment has worked out, it might seem logical to graduate to home ownership when the lease is up. A Time magazine survey found that 37 percent of millennials think buying a home together should come before getting married.
- Mortgage rates have been at record lows for years, helping to make home ownership affordable. Some think it’s good to buy now and lock in a low rate, as interest rates are beginning to tick up.
- In expensive areas, it commonly takes two incomes to buy a home.
- According to a December 2014 survey by real estate company Redfin, 38 percent of millennial couples think their money is better spent on a down payment than on an expensive wedding.
- The appeal of building equity and deductibility of mortgage interest
There are, however, some significant concerns couples should consider before embarking on what is traditionally the largest investment we will make in our entire lives. The most consequential is that there exists a significant body of well-established divorce laws in every state that govern the breakup of a marriage and the distribution of assets. Those laws do not apply to the division of assets of unmarried couples (not to mention unmarried parents, which we cover elsewhere).
Most legal and financial advisers recommend unmarried couples not purchase a home together. If, however, couples are determined to do so (a study by Coldwell Banker found that about one in four married couples younger than 35 bought their first home together before they actually tied the knot), experts recommend a cohabitation property agreement. This agreement should such things as:
· Who will hold the mortgage, one or both parties? This may depend on the relative credit scores of the applicants, and other factors.
· Who will be on the deed, one or both parties?
· Type of ownership on the deed (joint tenancy with rights of survivorship or tenants in common)
· Percentage of the house each party owns.
· Payment responsibility.
· Buyout agreement.
· Dispute resolution process.
· Exit strategy.
Another key to avoiding the many traps inherent in unmarried couples buying a home together is complete transparency. Each party must understand in detail their partner’s assets, liabilities, credit score, etc. before entering into a cohabitation agreement. Unanticipated events such as a job transfer, loss of a job or demotion, an illness or accident, etc. can upset the best laid plans, unless one or both parties have enough reserves to see them through such circumstances.