A 31-year-old homeowner has found herself in a common modern-day dilemma: Should she stay put in a home she owns (with a great mortgage rate) or take the next step with her partner and buy a second home together?
Understandable if she didn’t want to sell — she’s owned her home for less than two years, the mortgage is locked in at 4.75% and her monthly payment, including taxes and escrow, is only $1,000. It’s a hard deal to walk away from.
But her boyfriend is ready to buy and move forward with their relationship. Now, she’s left wondering: Would it make more financial sense to rent out her home, co-buy a new place or sell and start fresh?
If you’re in a similar situation — balancing homeownership with a new relationship (and the potential of increasing your real estate costs), here’s what to consider before making your next move.
Purchasing a second home is a big financial commitment that requires careful consideration. Take the time to assess the practical implications before you take the plunge. Here are a few questions to help you determine if buying a second home aligns with your financial and personal goals.
Purchasing property with a partner is a big commitment. Unmarried couples should consider a cohabitation agreement, similar to a prenup, to outline ownership shares, financial responsibilities and procedures in case of a breakup. This legal document can help prevent disputes and protect both parties’ interests. But, if you have any misgivings about the relationship, purchasing a home together is not likely the best course of action.
Women, in particular, should think carefully about maintaining financial independence when entering joint property ownership. If marriage is on the horizon, consider how that might affect ownership of the home. Do you plan to have children? If so, how might that impact your income and your ability to contribute to mortgage payments? Having these conversations now can help you determine if it’s a good idea.
Turning your current home into a rental can offer passive income and long-term equity growth. However, it also introduces landlord responsibilities, potential vacancy risks and tax implications. Run the numbers before going this route. Assess the local rental market to determine if the potential income outweighs the costs. If you’re considering a management company, make sure you can afford it.
Owning two properties requires financial planning — and a strong financial standing. Ensure you have at least a six-month emergency fund, sufficient funds for a down payment and reserves to cover potential vacancies or maintenance issues in your first home. Lenders often require higher reserves for second homes, so assess your financial readiness carefully.
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In some cases, it might make sense to buy a second home with a partner you aren’t married to. If you decide to take this route, here are a few steps to help reduce the risk and protect your financial future.
Before house hunting, have an open conversation about your financial situations, including income, debts, credit scores and long-term goals. Decide how expenses like the mortgage, utilities and maintenance will be split. Talk about what will happen if you do break up.
When purchasing property together, the most important step is deciding how the title will be held. The two main options include:
Joint Tenancy: Both partners have equal ownership, and if one passes away, the other automatically inherits the deceased’s share.
Tenancy in Common: Each partner owns a specific share of the property, which can be unequal. Upon death, the deceased’s share doesn’t automatically go to the surviving partner but is distributed according to their will or state laws.
Choosing the right ownership structure is crucial, especially if either partner has children or other heirs. Consult with a real estate attorney to ensure your ownership structure works for your situation.
Consider how life changes — like marriage, children or career moves — might affect your living situation. Discuss plans for refinancing, selling or renting the property in the future. Regularly revisit your agreement to ensure it still aligns with your circumstances.
Buying a home with someone is a big step — both financially and emotionally. By being open, communicating clearly and putting agreements in writing, you can help protect your relationship and your financial future.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
