Don't Buy A House With a Girlfriend or Boyfriend Until You Read This

With today’s home prices and mortgage rates, a dual-income household is almost required to afford a home in many markets.

You’re seriously dating someone, so wouldn’t it make sense to go in on a house together? You could start investing in your shared future.

Buying a house with your girlfriend or boyfriend can work out well but it can also end badly. Here are things to think about before making a decision.

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Approach the Decision Assuming a Breakup

It’s harsh, but someone buying with a romantic partner should assume they will break up while they own the home. This helps you deal with the worst-case scenario. Then, things can only turn out better.

Think about what you’ll do with the home and mortgage if you break up. Will you both continue to live there? If not, does one person want the home off their credit report? Who will buy out whom?

People buy homes together all the time. But a pure business arrangement usually involves a contract and what-if scenarios worked out ahead of time.

But people don’t feel they need to approach it the same way when in a romantic relationship. Yet, broken personal relationships can turn out messier than business ones, so why not have protections for both parties?

Here’s what to consider if you buy a house with a boyfriend or girlfriend.

1. It’s Difficult To Get One Name Off the Mortgage

While you can remove a name from title easily, you have to refinance to remove a name from the mortgage. The remaining party must be able to qualify for the new loan on their own. But they probably can’t, hence the reason you’re buying together. Leaving both names on the mortgage puts the departing party’s credit score at risk if the remaining party misses a payment. It also makes it harder for the departing party to obtain new credit such as a mortgage or car loan with that large mortgage payment still on their credit.

2. You’ll Have to Buy Out The Other's Equity

Each party will gain equity as you make mortgage payments and the home value rises. For example, you buy a house for $300,000 with a $270,000 loan. In three years, the loan is $260,000 and the home value is $320,000. You share $60,000 in equity. If one person leaves, they are owed $30,000. You could pay them off in cash, but few have that much on hand. You would have to sell the home or have one person qualify for a cash-out refinance, which you may not qualify for.

3. You May Not Be Able to Sell

If you break up, you may decide to sell the home and split any profits. This is the cleanest option, but may not be possible. One party may not want to sell. Or, you might not have enough equity. Selling a home can cost 9-10% of its value with real estate commissions, taxes, and fees, leaving you with a hefty bill to close the sale.

4. You Might Not Want to Continue Living Together

The best option could be to keep living together and making mortgage payments. This gives both parties a place to live while continuing to gain equity. Still, it’s hard to predict how a relationship will end. It may not be amicable.

There are many barriers to distributing equity fairly when homeowners break up, so it’s wise to write up an agreement beforehand.

Form an Agreement for All Scenarios

Just like a business arrangement, come up with possible scenarios and how you would handle each one.

Upon a breakup, what happens if:

• One party wants to leave and the other doesn’t

• Both parties want to keep the home, but not live with the other

• One party wants to sell, the other does not

• Both parties want to leave, but one wants to keep the home and rent it

A real estate lawyer can help you address possible scenarios.

Decide How to Own the Property

There are a few ways you can own the home together:

• Tenancy in common: You can own any percentage of the home. If you die during ownership, your share can go to an heir

• Joint tenancy: You own and have access to the home equally

• Joint tenancy with rights of survivorship: Like joint tenancy, but one owner’s share passes to the other owner upon death

Again, bring a lawyer into this part of the conversation to make the right choice.

Besides legal ownership, think about who pays the mortgage payment, major repairs, utilities, etc.

Options If You Separate

If you separate, you have some options on what to do with the property.

Sell

You may have the option to sell the home. This depends on whether both parties are willing and you have enough equity to cover selling costs.

Refinance

You can refinance the loan into one party’s name if one of you can qualify for the new loan on their own. The remaining party would have to buy out the other party’s interest.

HELOC

A home equity line of credit (HELOC) could buy out one party’s interest. However, it does not remove one person from the primary mortgage. You would also need adequate equity in the home to be approved for a HELOC.

Move Out and Rent

If you can’t sell or refinance, you could both move out to separate residences and rent out the home. Ideally, you would break even after the mortgage payment and expenses, but you might incur a monthly loss. Keep the home until conditions are more favorable.

Create a Buyout Agreement

One party could stay in the home while the other leaves. The remaining party could make monthly payments to the other until the equity is paid in full. Again, this won’t remove the departing party from the mortgage.

Think Carefully

Because it’s such a complex issue, you may consider not buying a house together or waiting until one of you can purchase the home alone.

However, the idea can work out with the proper planning. There’s nothing romantic about legal agreements and discussing a possible breakup. But it’s better than the alternative.