Love and Real Estate

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Love is a many splendored thing, but when it comes to real estate … love can be a tricky thing. Be careful before jumping into a home purchase with a boyfriend or girlfriend, say the experts. That combination could end up breaking your heart and your wallet if you’re not well prepared.

The idea of owning a home with a significant other offers some tantalizing perks. You may be able to land a better mortgage rate and terms if one partner has better credit. You can split the monthly mortgage payments and ownership costs. You can share upkeep duties. And, of course, you won’t be lonely in a house by yourself. But if you break up, dividing up the home and the funds put into it can be a lot messier for non-married couples, especially those who have both names on the mortgage or title.

“If the relationship fails and you move out, you may both be stuck on the mortgage of a house in which you no longer live. If one partner defaults on the mortgage payments, credit ratings for both parties would suffer. Also, absent a court order, it may be hard convincing one person to sign themselves off the title,” says Shaolaine Loving, attorney with Loving Law Ltd., Las Vegas. “Furthermore, your state’s laws on marriage and divorces may not apply to unmarried couples, so how the court will divide your interest in the house is less certain than if you were married. And even if the court orders you both to sell the house, selling it may be a challenge – depending on the market.”

Mary Catchur, president of Tampa, Florida-based Marimark Mortgage LLC, notes that “the only way to remove one of the parties from the mortgage is to refinance. But if the party keeping the home is not able to qualify for a mortgage on their own, the couple may have to sell the home.”

If, on the other hand, only one partner’s name is on the mortgage, consider that the other person cannot claim any mortgage interest tax deductions – unlike a joint return if you were married. Additionally, if only one partner’s name is on the title, that person has the explicit advantage of claiming ownership to the house, unless a written agreement or court order spell out the other person’s interest.

For these and other reasons, Brian Davis, director of education for Philadelphia-based Spark Rental, recommends that romantic couples refrain from buying real estate together before tying the knot.

“Usually, one partner has to buy the other partner out at a mutually agreeable price, or the property has to be sold. And considering how emotional most breakups are, disentangling from such large and illiquid assets becomes much harder,” Davis says. “Instead, unmarried people should buy real estate singularly. Before I married, I bought a house by myself. My girlfriend moved in, she paid me rent, and once we were married I added her to the deed, which can be done quickly and cheaply. We set up a joint bank account and used it to pay for housing costs together.”

Allison Goodhart DuShuttle, agent with the Goodhart Group at McEnearney Associates in Alexandria, Va., says it also pays to wait until after a wedding to purchase, because wedding planning is stressful enough and you can put monetary wedding gifts toward your down payment.

“Be sure to pay cash for items like a wedding ring, reception or the honeymoon, as racking up high credit card bills can affect your ability to obtain mortgage financing or cause you to be denied for your loan,” DuShuttle says.

If you are still determined to proceed with a real estate partnership minus the matrimony, Loving recommends taking legal precautions. Draft out a written agreement that clearly outlines what each person will pay toward the property, including mortgage, taxes, insurance, utilities and maintenance. The agreement should also detail each party’s responsibilities and how disputes should be settled. Once completed, a notary public can sign the agreement. To be even safer, consult with a lawyer.

“Whichever partner is truly okay absorbing the house in the event of a split should be the only one on the title – ideally the same person who is on the mortgage. The other partner can go under a tenant arrangement and pay rent,” says Loving, who also suggests keeping separate accounts.

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