My boyfriend and I are planning to buy a home together, but the mortgage will be in his name. How can I protect my investment?
Dear MarketWatch,
I purchased my condo back in 2008 for half of the price my condo got appraised for. Since then I have met my boyfriend and we had two kids so we are busting out of the seams from my condo.
My boyfriend and I are both business owners, so we are only cleared to get a non-traditional loan. His statement loans got cleared for the mortgage, so his name will be on the mortgage. When we sell my condo, we will be using the majority of that sales money as a down payment.
I would like to get a written statement before we go into this new home together just in case something happens with our relationship, but I’m not sure how the home assets should be divided if anything happens in our relationship. We will probably not be able to buy each other out because of the price tag, so if we end up selling the home, would I be entitled to get the initial down payment that I put down plus whatever we make off the home? With the mortgage we will be paying 50/50.
Sincerely,
Just in Case
‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Jacob Passy at [email protected].
Dear Case,
Now is definitely the time to be having these conversations, and I’m glad to see that you and your boyfriend are. Buying a home with someone you’re not married to can carry particular risks — given the exact scenario you’re concerned about.
When we buy a home with a spouse, there’s a certain degree of comfort we can take knowing that in the event of a divorce there will be a clear legal channel to untangle your financial relationship. A judge or mediator can decide who keeps the house — or how much of the proceeds from its sale go to each person.
But if you break up with an unmarried partner, or if a relationship with a friend or family member sours, there isn’t a clear-cut legal channel to hash out these issues. However, there are a number of steps you can take to protect yourself and your financial investment in this home.
To start, just because the mortgage won’t be in both your names doesn’t mean that the title or deed to the home cannot be. Sometimes even married couples will choose to purchase the home together, but only put one person’s name on the mortgage. After all, one spouse could have a much better or worse credit score than the other, a steadier stream of income or less existing debt — all factors that can help them lock in a better interest rate or more attractive terms.
The mortgage lender typically has to sign off on both of you not being “on the mortgage” — sometimes they’ll require that both people appear on the mortgage itself, but then only one will be on the note, which is the declaration that you promise to pay back the loan.
According the New York- and Los Angeles-based law firm Spodek Law Group, for you as the non-borrowing co-owner of the home, should your boyfriend fail to make on-time mortgage payments, “the bank will still have recourse to sell the home to get repaid.”
If both your names are on the title of the home, then both of you own it, regardless of who is on the mortgage. A mortgage lender can block attempts to add a person to the home’s title after the fact, so that’s why it’s important to square things away from the start. (How your names are listed on the deed can have implications for what happens if one of you dies, but that’s a separate issue.)
After determining the best route for you to take in terms of the home’s title and mortgage, you should also consider drawing up a cohabitation or coownership agreement in advance of purchasing the home. I recently recommended this to a retiree whose daughter proposed building a home and moving in together.
“Many couples are reluctant to discuss the “what if” we break up scenario,” Kiki Manti Engel, an attorney at Southern California law office Reid & Hellyer, wrote in a blog post. “However, it is vitally important for nonmarried co-owners (or cohabitants) of real property to have a written agreement in place to protect themselves.”
The written agreement can spell out how the property would be divided in the event you both chose to break up with one another, and you could specify that you would retain the amount used for the down payment if the home were later sold, since it was funded using the money you earned from selling your current condo. A document like this would hopefully prevent a legal fight from ensuing if this unfortunate scenario were ever to arise.
So go ahead and hire an attorney to walk you through this — and while you’re at it, since you two have children, be sure to update your wills to factor in how property would be split amongst them if you and your boyfriend were to pass away. Good luck on this exciting new chapter in your relationship.
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