There’s been a surge in unmarried couples buying homes

More couples are choosing to advance their relationships with mortgages before marriage.

The number of unmarried young couples (between the ages of 24 and 35) buying homes has risen to 15% from 11% in 2005, according to research from real estate website Zillow, an increase of 36%. Many millennials face debilitating financial hurdles, such as student loan debt, that could delay homebuying, but first-time home buyers are still expected to drive existing-home sales this year. Some millennials choose to continue living with their parents until they’re ready to buy a home, and they’re even skipping the “starter home” altogether for a bigger house.

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But buying a home before you’re married has its consequences. If both names are on the title and your relationship ends, one or both parties are still liable for paying the mortgage. “The lender doesn’t care if you break up later,” said Greg McBride, chief financial analyst at personal finance website Bankrate.com.

Here’s what to do before taking the plunge:

Make a home ‘prenup’

The basis of a prenup can expand beyond marriage. Experts suggest unmarried couples draft a legal document with an attorney that describes the finances going into the home purchase, such as the way the down payment is split, and how future home repairs will be paid. Without a co-ownership document, courts may not equally divide assets if the relationship were to dissolve and it wasn’t explicitly clear who paid for what, Stephanie Hill, a managing member of law firm Keystone Legal in Minneapolis, wrote in 2011.

See also: This millennial bought her first home — and her family offered her cash

Nobody wants to think about their relationship’s demise, but exit strategies, as McBride put it, are crucial for large purchases. Unmarried couples buying a home together should discuss what happens to the house, how finances will be split and who gets what if they were to break up. Courts are also not set up to help unwind property ownership for non-married couples as they would married ones, Hill said. “Young couples who are in love and committed maybe aren’t thinking about what if they got divorced or one dies,” she said.

Choose whose name goes on the contract

The title of the home can include one or both partners, so it may make more sense to have both names appear on the deed. When someone is sole owner of a home intended for a couple, all financial responsibilities for the home rely on him or her. There are two ways for both partners to be on the title, according to Bankrate.com: http://www.bankrate.com/finance/real-estate/homebuying-tips-unmarried-couples.aspx They can be “joint tenants,” where they have equal shares of the home and if one partner dies, his or her share is automatically transferred to the other partner; or “tenants in common,” where both get shares of the home but if one were to die, that half would go to the deceased’s heirs.

Build your credit scores together

Lenders’ expectations of credit scores have jumped dramatically since 2000, making it difficult to get a good mortgage rate for those without pristine credit scores. In order to get a good rate for a mortgage loan, both parties should work toward building their credit scores together, such as paying credit card bills on time every month. If there are two borrowers applying for the home, lenders will choose the higher of the two scores to base its loan decisions on, Terrazas said.

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MarketWatch.com – Financial Services Industry News

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