On This Day, We Join Together … Our Housing Payment?
One of the big decisions that go with applying for a home loan is whether or not to purchase your home together with your spouse or significant other.
Actually, you have two decisions to make. The first is whether you want to include your spouse or significant other on your mortgage application. The second is whether you want to include your spouse or significant other on the deed itself. You can include them on the deed while choosing not to include them on the mortgage application, and vice versa. There are advantages and disadvantages to each course of action, and the right decision depends on your specific situation and applicable state law.
Spouses and Mortgages
Buying a home in only one name makes sense if one person has a credit history that will not help you get the loan. On the other hand, if you purchase the home in one name, the only income that will be considered as a means to repay the loan is the income of the person who will be signing the mortgage. That may not be enough to qualify for the loan, in which case you’ll need both names on the paperwork.
If you’re not sure where the relationship is going, and/or one of you has put down a larger down payment or will be making most of the monthly payments, you’ll want to make sure everyone’s interests are protected.
If You’re Married
Be sure to pay careful attention to exactly how your ownership is defined on the property deed. The exact language the state uses in awarding the title can have a big impact on family wealth transfers down the road. There are a variety of forms of ownership that are possible between two spouses, including joint tenancy, tenancy in common, and tenancy by the entirety.
- Joint Tenancy
Joint tenancy grants each owner – or each spouse, in your case – the right to use the whole property. One benefit of joint tenancy is that it also includes the right of survivorship: When one person dies, his or her share goes to the other owner – not to heirs. This works well for married couples, in most cases. However, joint tenancy also includes the right to transfer interest in your half of the property without your spouse’s permission. This can cause problems in the event of a lawsuit, since half the home is vulnerable to collectors.
- Tenancy in Common
Tenancy in common also allows both parties the right to the undivided use of the whole property. However, this form of ownership does not typically include the right of survivorship. When one spouse dies, the deceased spouse’s interest in the home doesn’t automatically go to the surviving spouse, but potentially goes to heirs. This could also pose an estate management problem, depending on the overall estate tax situation, asset protection situation, and the quality of familial relationships.
- Tenancy by the Entirety
Tenancy by the entirety allows each partner the undivided use of the property, coupled with the right of survivorship. Moreover, one partner’s interest cannot be transferred without the consent of the other, which can come in handy in the event of a judgment pursuant to a lawsuit that would otherwise cause you to lose your home.
State Laws Vary
Yes, there’s a difference in legal status whether you’re married or not. In some states, you will not be able to purchase a home without your spouse. That may be true even if you’re separated because some states do not recognize a legal separation. According to Home Ownership 101 published by the American Bar Association,
- “Unmarried co-owners have to choose whether to be tenants in common or joint tenants with right of survivorship. Married co-owners could choose either of those forms, or in some states might opt to be tenants by the entirety or in others to hold their home as community property.”
If you’re married and are considering buying a primary residence without your spouse, contact a lawyer. Depending upon the state you’re in, it could be complicated.
Purchasing an investment property is different, though, and it can usually be done in one name only. However, laws vary by state, so you may want to look into this, too.
If You’re Not Married
If you’re not married, you can still buy a home together. However, it’s a good idea to see a lawyer and put something in writing to avoid potential problems in the future. While doing so may seem less than romantic, it’s a prudent step to take, and can save thousands of dollars and lots of heartbreak somewhere down the line.
So, to sum it up, you want to purchase a home together if you need both incomes and neither credit history is negative. If one party has a greater investment in the property, make sure his or her interests are protected. If you’re married, there may be no option other than to purchase the home together.
You’ll want to keep your spouse off the paperwork if the income is not needed and/or the credit history would keep you from qualifying. Additionally, consider your personal feelings about the relationship, who is putting down what, and who will be paying the mortgage.
Whatever you decide, an open, honest discussion is in order. For more legal information, see http://www.americanbar.org/content/dam/aba/migrated/publiced/practical/books/home_ownership/chapter_1.authcheckdam.pdf.