Can you buy a house with someone you are not married to? The short answer is yes. However, should you, is the important question. In general, there are three main reasons you may want to buy a house with someone you are not married to:
- A boyfriend/girlfriend want to make a stronger commitment
- Friends want to buy a vacation home or investment
- Strangers want to invest in real estate and reduce, or share the risk
You may find yourself in any of these situations at various times in your life. It is important to examine your reasons for wanting to buy the property. Also, you should examine you financial and emotional reasons for wanting to make this kind of investment.
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Is it smart to buy a house with a boyfriend/girlfriend?
It is usually a bad idea to buy a house with your boyfriend/girlfriend. For most people, it is the biggest purchase of their lives, and it puts a stress on finances and emotions. If you are not willing to make smaller decisions together first, it is unlikely to work well with a house.
There are good reasons for a committed couple to buy a house together. Low mortgage rates (though they are climbing now), rising home values, and mortgage interest deduction are all reasons that couples buy a home. There is also the satisfaction of homeownership and sharing the commitment and investment.
If you do decide to go forward with the purchase before marriage, My Mortgage Insider has a couple of pieces of advice that may be helpful:
- Honestly and completely share your financial information
- Think carefully about how you will take title for the property
The first one is critical, because the mortgage company will find out any financial problems you may have. It is better to get everything out in the open before beginning the process. You do not want your partner to find out you hid something from a stranger in a bank.
How you take title of the property may not seem that important when you purchase, but it is. This is because things go wrong in life. You may split, or one of you may die. A financial crisis may happen, like a long-term illness. If these happen, then whose name is on the title becomes important.
Buying a house is a big commitment. There are complex financial and emotional considerations. If you are unable or unwilling to commit to marriage, it strongly suggests that you may not be ready to commit to a house together.
Can you buy a house with a friend?
You can buy a house with a friend, and people often do. Some people ask friends to go in with them on an investment property. Others want to share the expenses of a vacation home. Still others want to buy a primary residence and share the expenses. It is becoming more common for people to buy property with friends for all these reasons.
Like the unmarried couple we talked about earlier, there are considerations that you must consider carefully before you move forward with the investment. Even an investment property, which may seem businesslike on the surface, can and often will bring on strong emotions. Quicken Loans lists five things to consider before entering a property investment with a friend:
- Carefully choose the friend: priorities and trust are important
- Openly and honestly disclose your financial situation before you move forward
- Agree on what type of property you want to buy
- Decide what ownership type you will use
- Create a contract that describes what will be done if one of you does not honor your obligations
These may seem like convoluted, and even unnecessary, but each of these is important if you want things to go smoothly. Such large investments may put a strain on any relationship. You never want to lose a friend over a piece of land, no matter how good the investment may seem.
Can I buy a share of a house?
You can buy a share of a house. There are a few options to do this. Investopedia has a nice post that outlines your choices:
- Sign a contract with other individuals stipulating the ownership shares of each
- Real Estate Investment Groups (REIGs)
- Real Estate Investment Trusts (REITs)
If you have the finances and relationships, you can enter legal partnerships with friends to own shares of real estate. Most of us do not have the resources to do this, but REIGs and REITs offer the opportunity to invest in shares of investment properties. REIGs are less structured than REITs. REIGs typically organize as partnerships and pass-through income reported on K-1 tax documents. REITs are corporations or trusts. You buy shares in the company and are traded on the stock exchanges. Crowdfunding is a newer form of investment, and usually people find these opportunities online.
How do I protect myself when buying a house with a partner?
You protect yourself when buying a house with a partner by treating it as serious financial investment. This includes:
- Vet your potential partner: interview them and perform a background search
- Do a financial audit of their personal and professional finances
- Decide upon the ownership type, and share of ownership before you even look at any potential investment
- Draw up a contract with a real estate attorney to protect your interests
These steps will protect you, but the most important thing you can do is to treat it as a business, and not as a sideline.
How do you split a mortgage with your partner?
How you split a mortgage with a partner is up to you, but there are important considerations to consider:
- The mortgage company expects to get paid each monthly payment, no matter how pays it or what share the borrowers agreed to
- If one partner defaults the bank expects the other(s) to pay the entire amount
- The lender will foreclose if they do not receive the total payment
Banks only care whose name is on the contract. They will go after all the people who sign the contract to collect their payment. Whatever agreement you have with your partner(s) does not concern them. Having said that, it is important for you. Make sure you have a legal contract that stipulates what happens when one partner defaults on their obligations.
How do you split ownership of a house?
There are three main ways to split ownership on the title. These are how you legally split the ownership:
- Tenants in common: May have unequal shares and each partner retains a right to sell their shares
- Joint Tenants with right of survivorship: Each has an equal share, and ownership passes to the other owner(s) upon death
- Tenants by entirety: Each owner has an equal share, and legally that is 100%. Not all states allow this ownership
Find Law has a good article outlining these ownership types. They go through the pros and cons of each. You should think carefully about which is best for your individual situation. A good real estate attorney can help you make a wise decision
Buying a house with someone you are not married to taxes
If you buy a house with someone you are not married to there are important tax implications. You cannot deduct it for investment properties. So, unless it is your primary residence or second home, then it becomes a business expense you fill out on a Schedule E tax form.
If it is a primary or second home, then the main consideration is that only one may claim the deduction. On top of that, the person claiming the deduction must itemize their return. Nerd Wallet points out that you must fill out a Schedule A to get the deduction, and therefore you will not get the standard deduction. For many people today the mortgage interest deduction is not worth as much as the standard deduction. Therefore, carefully examine whether it is worth it to itemize in your situation.
Final Thoughts on What Happens When You Buy a House with Someone You Are Not Married To
When you buy a house with someone you are not married to there are many things to consider. Why do you want to make the investment, to live in the house or as an investment? What is the financial and ownership interests of each person. These are big decisions and important choices. No one should ever venture into a real estate investment lightly. Whether you are an unmarried couple or friends looking for a sound investment trust and emotional stability are crucial. Make sure you follow a sound plan and do not make rash, emotional decisions.