Buying a home with someone other than your spouse?

Karla’s two cents (on the house!)

Whether you’re purchasing a home with a sibling, friend, parent, significant other or anyone you’re not married to, there’s one piece of advice I can’t stress enough: Get a written cohabitation or co-ownership agreement in place!

Why Is a Cohabitation Agreement So Important?

When married couples divorce, there’s a legal process for dividing property and debts. But what happens when two people who aren’t married own a home together?

A cohabitation or co-ownership agreement establishes how the property will be handled if one person wants out, stops making payments, passes away or circumstances change.

Without a written agreement, you could find yourself in a costly legal battle over a home you own together.

Think of it as establishing the rules while everyone still gets along!

What Should Your Agreement Address?

Here are some important questions to discuss with a qualified attorney when establishing your agreement.

1. Who Owns What?

Are you splitting ownership 50/50? What if one person contributes significantly more toward the down payment? How will those contributions be recognized if you eventually sell?

2. Who Pays for What?

How will you divide mortgage payments, property taxes, insurance, maintenance and repairs?

What happens if one person stops contributing or can no longer afford their share?

3. What Happens if Someone Wants Out?

Can one person require the property to be sold? Does the other have the first opportunity to buy them out?

How will you determine the home’s value and calculate each person’s share of the equity?

What if one owner moves out but wants to maintain their ownership interest?

4. What if One Person Wants to Keep the Home?

Can that person actually qualify to refinance the mortgage into their name alone?

Remember, removing someone from the title does not remove them from the mortgage.

And a written agreement cannot force a lender to approve a refinance or release someone from mortgage liability.

5. What if You Agree to Sell, but the House Won’t Sell?

This is a big one!

What happens if the property doesn’t sell for the price you anticipated?

Who decides when to reduce the asking price? What if one person refuses?

And perhaps most importantly, what if the home isn’t worth enough to pay off the mortgage and selling expenses?

Who is responsible for bringing additional money to closing? What happens if neither party has the funds?

Your agreement should anticipate these possibilities rather than assuming everything will go according to plan.

6. What Happens if Someone Dies?

Does their ownership interest transfer to the surviving co-owner or become part of their estate?

Could you suddenly find yourself co-owning a home with someone’s heirs?

Make sure your attorney addresses how the agreement works with the property’s title and each owner’s estate plan.

7. What Happens if Someone Stops Paying?

If both names are on the mortgage, both borrowers generally remain responsible for the debt, regardless of any private agreement about who makes the payments.

Late payments can damage both borrowers’ credit, even if only one person was supposed to pay.

How will you protect yourself if the other owner stops contributing?

8. What Are the Deadlines and Backup Plans?

If someone agrees to refinance, buy out the other owner or sell the property, how much time will they have?

And what happens if they can’t meet that deadline?

A good agreement doesn’t just outline Plan A. It anticipates what happens when Plan A doesn’t work.

One Last Thing…

Buying a home together is a significant financial commitment, regardless of your relationship.

You may trust each other completely today, and hopefully that never changes. But protecting your financial future isn’t about a lack of trust. It’s about being prepared.

My advice? Get the agreement in writing, have it prepared or reviewed by a qualified attorney and make sure the mortgage-related provisions are realistic.

Because just because something is agreed upon doesn’t mean a mortgage lender can make it happen.