Home Buying With a Partner

EDITOR'S NOTE: This article is from Kiplinger's Success With Your Money special issue. Order your copy today.

In most states, owning a home with a partner is no more difficult if you're unmarried than if you're wed. But buying can be a little trickier. Because each partner applies separately for the loan, each credit score matters more. As a result, many people are advised to apply in one person's name and to add the other partner to the title at a later date. But in many states, that can trigger costly transfer taxes. Transfer taxes can also be a problem if you part ways and one person keeps the house.

Taking the title. You have two options for establishing ownership. Joint tenancy is generally appropriate for couples who will share the cost of the home equally; couples who are tenants in common may chip in different amounts. With joint tenancy, property passes directly to the other owner when one of you dies. With tenants in common, neither person has an automatic right to inherit property.

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Crafting the contract. Spell out not only how you'll take title but also who'll pay what and what happens to the property if you part ways. For example, who gets the right of first refusal if both parties want to keep the house? Nolo's Living Together ($35) has sample contracts, but if your situation is complex, it's wise to consult a lawyer.

Keeping records. Even if your contract spells out each partner's share of the costs, keep track of how much you put toward the mortgage payments, repairs and other expenses. Such a record could come in handy if you split and disagree over who paid for what.

Paying taxes. Good record keeping will also make things easier at tax time. In fact, writing separate checks is a good idea. If you're itemizing deductions, each of you can deduct mortgage insurance and property taxes in proportion to what you paid. When you sell the home, each of you can exclude up to $250,000 of profit.

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