Gary Burchell | Getty Images
More couples are becoming homeowners before tying the knot.
Unmarried couples make up 18% of all first-time homebuyers, up from just 4% in 1985, according to a 2022 report by the National Association of Realtors.
The organization mailed out a survey in July 2022 and received a total of 4,854 responses from homebuyers who bought a primary residence between July 2021 and June 2022.
“Unmarried couples have been on the rise [as homebuyers] and now they’re at the highest point that we’ve recorded,” said Jessica Lautz, the Washington, D.C.-based vice president of research of the National Association of Realtors.
Buying a house is a bigger commitment than renting, so while these couples may be eager to own a home, there are a few things they should consider before purchasing a property together.
‘Housing affordability really is a struggle’
Many young, unmarried couples live together, often for financial reasons. According to a study by the Thriving Center of Psychology, about 3 out of 5 unmarried couples live together in the U.S. The NAR report found that almost half of unmarried homebuyers — 46% — made financial sacrifices, including taking on secondary jobs, to finance their purchase.
Even so, unlike married homebuyers, almost half of unmarried ones — 46% — made financial sacrifices, including picking up secondary jobs, to finance their purchase, the NAR report found.
“Housing affordability really is a struggle, so pulling your finances together as an unmarried couple can make a lot of sense to move forward on that transaction,” said Lautz, who is also the deputy chief economist of NAR.
The typical unmarried couple buying a home together for the first time was roughly 32-year-old millennials with a combined average household income of $72,500, according to
Lautz. Additionally, these shoppers were more likely than married couples to receive loans — 4% versus 3% — or be gifted money from friends and family — 12% versus 7%. One reason unmarried people may decide to buy homes with their partners is the strength in numbers that pairing up offers when it comes to qualifying for financing, as real estate prices and interest rates remain high, said Melissa Cohn, regional vice president of William Raveis Mortgage in New York.
While one could argue couples should simply get married if they’re already investing in a house, some people may opt to keep things, such as their estates, separate.
“There are reasons why people don’t get married; it’s not an automatic given these days,” Cohn noted.
But unmarried couples should carefully approach making a commitment of this scale.
There are often no legal protections they can fall back on, said Cohn. Cohn said that unmarried couples should be cautious when making a commitment of this magnitude.
How to secure each other’s investment
“In order to walk away from a marriage, you have to get divorced, so there’s more staying power,” Cohn said. If you are not married, you do not have any legal obligations to the other party. She added that it’s counterintuitive to stop paying mortgages because it would ruin your credit. Unmarried couples should carefully consider the title of their property to protect their investment. Talk to an attorney to learn more about your options. Those options might include titling the property as joint tenancy with rights of survivorship, if ownership is equal, or as tenancy in common if one partner is contributing more financially.
Couples might also consider using a limited liability corporation or other entity, Cohn suggested. She said that by transferring title to an LLC or partnership you can clearly define and specify who is responsible for which portion. They can also protect their investments by defining them in a contract. Cohn said that a property agreement can help define who is responsible for paying the mortgage and who pays for insurance or home repairs. This may be an excellent idea for couples who have different incomes.
Four factors unmarried homebuyers should consider
Here are four things that certified financial planner Cathy Curtis, founder and CEO of Curtis Financial Planning, in Oakland, California, says unmarried couples should think about before buying
1. Consider carefully whether you want to use retirement funds for a downpayment:
Although it is not a good idea to take money from your retirement account, millennials have many years to recover. For most millennials this is the place where they save most. The funds in a traditional IRA may be used to purchase a home for the first time, up until a lifetime limit of 10,000 dollars. Curtis said Roth IRAs are also accessible, but strict rules must be adhered to. You can typically withdraw contributions at any time without incurring taxes or penalties, but there are age and time requirements for withdrawn investments to count as a qualified distribution.
Many companies allow employees to borrow from their 401(k) plans. Employees can borrow up to $50,000 or 50% of their invested account balance. Curtis said that if a person had $100,000 or more they could borrow $50,000. If they have only $70,000 they can borrow up until $35,000. The loan must be repaid over a period of five years, or in full when employment ends. Check your credit report and score to get the best rate. Keep in mind that lenders will look at both partners’ scores if both are on the mortgage application.
3. Avoid large credit card purchases, and avoid opening or closing credit lines. These actions can affect your credit score. Saving money with a high yield savings account is a good idea:
Instead keeping your downpayment savings in the stock markets, you should consider using a higher-yielding savings account. Curtis added, “The market may dip just when cash is needed.” “Rates are good at the moment. “