Sharing a roof and a mortgage doesn’t mean that you also have to share a last name and wedding bands.
Today, it’s increasingly common for unmarried partners to buy a home together, not for investment purposes, but to live in. “We see it all the time,” notes Allyn Wilcox Rawling, an agent with the Evanston office of Koenig & Strey.
Friends or lovers shouldn’t be treated any differently than marrieds as they travel the home-buying route. “Lenders can’t look at unmarrieds any differently,” says Barbara Morrisey, branch manager of Amerinet Financial Services, an Arlington Heights mortgage brokerage firm. And although some instances of discrimination exist against gay couples, real estate agents say unmarrieds usually have no problems buying their homes and moving into neighborhoods.
Still, unmarried partners-whether gay or straight-have none of the legal stature that marrieds do, and that can pose some unique concerns in holding property, and later in disposing of the property, notes Larry Elkin, a certified public accountant in Hastings, N.Y., and author of “First Comes Love, Then Comes Money” (Doubleday, $22.95), a guide to financial planning for unmarried couples. “If you have any concern at all about whether this relationship is going to last for the rest of your life, you should think twice before you own property with a partner, because we don’t have the mechanisms that we have established for others, namely marrieds and business partners, to dispose of assets.”
“We have legal procedures like divorce that petition property more or less predictably,” continues Elkin. “But on the other hand, unmarried couples are living in a legal jungle and getting disentangled from someone is a whole lot harder than getting tangled in the first place.”
Unmarried partners buying a home need to put their own legal procedures in place that guarantee smooth ownership and a smooth disposition of the property if and when that needs to occur, says Neil Anderson, a Lake Zurich real estate attorney.
Here are some of the concerns unmarried partners should address during the home buying process, in order to avert trouble now and later.
Getting a mortgage
Just as with marrieds, unmarried partners can team their incomes in order to qualify for a loan of a certain size. If one partner doesn’t make much money, or has a shaky work history, then the loan may have to be based on the more stable partner’s record, notes Douglas Phinney, executive loan officer with Serve Corps Mortgage Inc., a Downers Grove mortgage brokerage. That’s no different from married couples, where one spouse might not work, notes Phinney. However, both names shouldn’t be on the mortgage application if one partner has a marred credit history, and the other partner makes enough to support the loan, says Amerinet’s Morrisey.
If only one partner is on the loan application, though, most lenders don’t want to see two names on the title to the property, says Morrisey. If both partners want to have legal ownership, they could establish a land trust later (see more about trusts under “Title Questions”).
One noticeable difference for unmarrieds, says Phinney, is that they are often charged an extra $40 or so because the lender must order two separate credit reports, while credit reports for married couples come bundled together.
When couples are buying a home together, everything doesn’t have to be split down the middle. “The cash for the closing can come from both of them or just one of them; it makes no difference,” says Phinney.
“I remember that when we saved for a down payment we knew we needed a certain amount,” says Wauconda resident Deanna Limperes, who bought a home a year and a half ago with her partner, Brian DeWyze. “But I don’t remember there ever being a crisp line that divided what we contributed.”
Still, it can be wise to keep track of who contributes what, both for the down payment and after you’re in the home (see “Title Questions” and “Tax Considerations”).
Negotiations
“If people want to live together, they are usually in sync with what they want, and it is no more difficult negotiating with a seller than it is with marrieds,” says Renee Stauner, an agent with Century 21 Advisors, Arlington Heights. “In fact, marrieds might argue more about what they want,” Stauner says with a laugh.
Koenig & Strey’s Wilcox Rawling says that sellers don’t care if a prospective buyer is a married or unmarried couple. “Sellers are primarily interested in the price that they are getting, not who is buying their home.” But a gay couple may encounter discrimination, especially if they move into an area where gay homeowners are rare. One real estate attorney concedes that he has seen neighbors try to invoke zoning ordinances, which prohibit multiple families from living in a single-family, in order to force the gay partners out of their suburban house. In the City of Chicago, housing discrimination based on sexual orientation is illegal.
However, David Hall, managing broker of the Kahn Realty office in Lincoln Park, says: “I have never encountered overt, or even a suggestion of, discrimination against gays in the 13 years I’ve worked in this office, and I have never heard any of my sales agents express any. The fact that we are in an urban setting may have something to do with it. But over the years there have been so many unmarried people buying-gay and otherwise-that it is just not considered an unusual situation.”
Title questions
Title, which legally defines the ownership of the home, is probably one of the most crucial areas unmarrieds need to consider. With some forethought on title questions, partners can plan what they want to happen should one of them die while they both still own the home.
“Basically there are three ways to structure title,” notes Anderson. “It can be `tenancy in common,’ in `joint tenancy’ or in some cases, in a land trust.”
In most instances, says Anderson, unmarried partners are best served with title in “tenancy in common.” That’s because each partner can own a stake in the property, and retain that stake if the other person dies. With “joint tenancy,” on the other hand, the entire house belongs to the surviving partner when the other partner dies.
Explains Elkin: “If someone is sure that he wants his current partner to get the property, owning it in joint tenancy is the way to go. But if someone wants to leave his share of the property to someone else-a child from a previous relationship, for example-tenancy in common is the answer.”
Another advantage of tenancy in common, points out Anderson, is that the title can reflect proportionate ownership. If, for example, one partner is putting up 70 percent of the down payment, and will pay 70 percent of the monthly housing expenses, the title can show a 70-30 ownership stake for the respective partners.
A land trust is used very infrequently, says Anderson, but can be useful in spelling out exactly what would happen to the property under different scenarios-the death of one partner, for example. Sometimes, however, lenders are reluctant to grant a mortgage for a home held in a land trust, says Phinney. That’s why trusts are often established after the closing, notes Morrisey.
Partnership agreements
In lieu of a land trust, a lawyer may recommend a separate contract to iron out further issues. “I always recommend a partnership agreement unless couples are planning to be married in the very near term,” says Anderson. “The agreements usually address two major points: What happens if one party dies, or what would happen if the couple doesn’t get along, and one party wants to bail out.”
For instance, says Elkin, a partnership agreement can spell out “that if we stop cohabitating at the demand of either one of us, the property must be sold by a third party within six months.”
And for couples who are buying a home before they plan to be married, a prenuptial agreement can incorporate an agreement on what will happen to the property should things not end up happily ever after, says Elkin.
Tax considerations
Once partners are in the home, it’s practical to have an agreement, formal or handshake, about who pays what expenses. And for tax purposes, each partner should keep track of what portion of the mortgage payment he pays, as well as any home improvements he foots the bill for, notes Meloni Hallock, director of personal financial planning in the Chicago office of Price Waterhouse.
In addition, says Hallock, “partners should also keep track of who pays for points for the closing.” That’s because when each partner files his own income tax statement, he should take his portion of the mortgage interest paid as a deduction, and the proportion of points paid at closing can be deducted from that year’s income.
Keeping track of home improvement expenses will help defray the amount of gain on the home when it is sold, because the gain is calculated on the sale price minus the cost of the purchase price plus all improvements. Hallock notes that each partner can claim part of the gain as their own, calculated with the amount of improvements each one funded.
