Can an unmarried couple buy a home together with only one person on the mortgage?

Question

Suppose there is a couple, Clayton and Emma. Clayton is 26 and has a good job making over $75k a year, Emma is 20 and still in college (she doesn't have any student loans but she has no job and no credit). Suppose this couple is not yet ready for marriage but they want to buy a house together.

Chances are only Clayton will get approved for a mortgage because he has income and credit. In this case can the title of the home still be held by both?

Would the lender (bank) have any reservations about this since a party not on the mortgage has ownership of the property?

Answer 1

It is highly unlikely that this would be approved by a mortgage underwriter.

When the bank gives a loan with a security interest in a property (a lien), they are protected - if the borrower does not repay the loan, the property can be foreclosed on and sold, and the lender is made whole for the amount of the loan that was not repaid.

When two parties are listed on the deed, then each owns an UNDIVIDED 50% share in the property. If only one party has pledged the property as surety against the loan, then in effect only 50% of the property is forecloseable. This means that the bank is unable to recoup its loss.

For a (fictional, highly simplified) concrete example, suppose that the house is worth $100,000 and Adam and Zoe are listed on the deed, but Adam is the borrower for a $100,000 mortgage. Adam owes $100,000 and has an asset worth $50,000 (which he has pledged as security for the loan), while Zoe owes nothing and has an asset worth $50,000 (which is entirely unencumbered). If Adam does not pay the mortgage, the bank would only be able to foreclose on his $50,000 half of the property, leaving them exposed to great risk.

There are other legal and financial reasons, but overall I think you'll find it very difficult to locate a lender who is willing to take that kind of risk. It's very complicated and there is absolutely no up-side.

Also - speaking from experience (from which I was protected because of the bank's underwriting rules) and echoing the advice offered by others on this site: don't bother trying. Commingling assets without a contract (either implicit by marriage or explicit by, well a contract) is going to get you in trouble.

Answer 2

I will expand on Bacon's comment.

When you are married, and you acquire any kind of property, you automatically get a legal agreement. In most states that property is owned jointly and while there are exceptions that is the case most of the time.

When you are unmarried, there is no such assumption of joint acquisition. While words might be said differently between the two parties, if there is nothing written down and signed then courts will almost always assume that only one party owns the property.

Now unmarried people go into business all the time, but they do so by creating legally binding agreements that cover contingencies. If you two do proceed with this plan, it is necessary to create those documents with the help of a lawyer. Although expensive paying for this protection is a small price in relation to what will probably be one of the largest purchases in your lives.

However, I do not recommend this. If Clayton can and wants to buy a home he should. Emma can rent from Clayton. That rent could any amount the two agree on, including zero. If the two do get married, well then Emma will end up owning any equity after that date. If they stay together until death, it is likely that she (or her heirs) will own half of it anyway. Also if this house is sold, the equity pass into larger house they buy after marriage, then that will be owned jointly.

If they do break up, the break up is clean and neat. Presumably she would have paid rent anyway, so nothing is lost. Many people run into trouble having to sell at a bad time in a relationship that coincides with a weak housing market. In that case, both parties lose.

So much like Bacon's advice I would not buy jointly. There is no upside, and you avoid a lot of downside.

Don't play "house" by buying a home jointly when you are unmarried.

Answer 3

In this case can the title of the home still be held by both?

Yes, it is possible to have additional people on title that are not on the mortgage.

Would the lender (bank) have any reservations about this since a party not on the mortgage has ownership of the property?

Possibly, but there is a very simple way to avoid this. Clayton could simply purchase the home himself, and add Emma to the title after closing by recording a quitclaim deed. The lender can't stop that, and from their point of view it's actually better, since they have two people to go after in the case of default. (But despite it being better they often make it difficult to purchase

Tip, when you have an attorney draft the quitclaim document, have them draft the reverse document too. (Emma relinquishing the property back to Clayton.) There is usually no extra charge for this and then you have it if you need it. For example, you may need to file the reverse forms if you want to refinance.

As a side note, I agree with Grade 'Eh' Bacon's and Pete B.'s in recommending that Clayton and Emma do not do this. Once they are married the property will either be automatically jointly owned, or a spouse can be added to the title easily, and until they are married there are no pros but many cons to doing this. Reasons not to do it:

1. It can make refinancing more complicated.
2. It's possible that if the market takes a dive and takes the home value down with it, this could create a liability for Emma that she otherwise would not have.
3. If Clayton defaults the bank can try to go after Emma.
4. If Clayton and Emma ever break up, undoing this takes action.

As a side note, in a comment it was proposed:

...suppose Clayton loves Emma so much that he wants her name to be on the house...

I understand the desire to do this from an emotional point of view, but realize this does not make sense from a financial point of view.

Answer 4

The mortgage and title of the house would be under both your names equally.

When I applied for a mortgage with my girlfriend, I was the primary applicant because of my credit score and she was the secondary because of her income (she makes more).

When all was said and done, it was explained to us that the mortgage was ours equally and so was the house, and that I didn't hold more ownership than her over either.

We were approved quickly and hassle free. This is our first house too. This is in Florida.

Answer 5

I did that. What is allowed changes over time, though — leading up to the crisis, lenders would approve at the flimsiest evidence.

In particular, my SO had only been in the country a couple years and was at a sweet spot where lack of history was no longer counting against her. Running the numbers, the mortgage was a fraction of a percent cheaper in her name than in mine. Even though she used a “stated income” (self reported, not backed by job history) of the household, not just herself.

The title was in her name, and would have cost money to have mine added later so we didn’t. This was in Texas, which is a “community property” state so after marriage for sure everything is “ours”.

Answer 6

It's not typically possible for someone to jointly own the house, who is not also jointly liable for the mortgage.

This doesn't matter however, because it is possible for two people to get a mortgage together, where only one person's income is assessed by the lender. If that person could get a mortgage of that amount on their own, then the couple should also be able to get the same mortgage.

Source: My wife and I got a mortgage like this. She is self-employed, rather than meet the very high requirements for proving her self-employment income, we simply said that we only wanted my income to be taken into consideration.

Answer 7

It depends on the bank - In some cases(mine included :) ) the bank allowed for this but Emma had to sign on a document waiving the rights for the house in case the bank needs to liquidate assets in to recover their mortgage in case of delays or non-payment of dues in time. This had to be signed after taking independent legal advice from a legal adviser.