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Background

My partner and I (not married, but together for years and in it for the long-term) both share many of the same goals and all of the same criteria for wanting to own a home. It's worth noting that our options are a little limited (at least where we find ourselves geographically), because we have fairly picky criteria. The home criteria is based on shared interests/hobbies, e.g. wanting a good yard for gardening. We're not so interested in moving as I have a good job where we are and my partner just finished school and has a good network in the area, an area we both like and have some roots in.

My partner is most interested in buying a home in order to build equity, as they grew up elsewhere and don't have much family, property, or funds to their name. I'm interested in owning a home for the reason of building equity as well, simply because my main passion/hobby is more feasible and beneficial when owning vs. renting (e.g. trees grow, landscape gets nicer over time).

We've been looking at homes and have started to see some promising ones. My partner was waiting to find stable work before trying to get pre-approved for a loan, but finding good options and in the off-season, there's more motivation to go get pre-approved sooner than later in order to start the process of making an offer, having a home inspection, etc. My partner has earned income while in school through various skilled (as in, requiring their qualifications) part-time and seasonal jobs. They have a history of success and as a hard-worker, but in field that doesn't pay the greatest and has limited job opportunities (existant, but scarce and cometitive) - having worked a lot in another country also contributes to their starting off with relatively little. I have verified some of their past work, have seen their current, and trust them.

That leads to the question:
What are the methods available for us to buy a home and which is recommended or not, for what reasons?

For example:

  • Option 1: we could apply for a mortgage together, buy together unmarried and be both 100% liable for the loan yet with split ownership and a legal contract to handle potential complications.

  • Option 2: My partner could go through the buying process solo, and I pay rent as a tenant living there. Improvements I make to the home would potentially end up as a gift to them if we split and I had no ownership, but I am better off financially to begin with and the home improvements I'd contribute to wouldn't be anything I couldn't happily 'gift' and walk away from (or if they were, I'd arrange a fair deal for that).

  • Option 3: I could buy the home on my own and allow my partner to 'rent to buy' in some way. This may be valuable if my partner's less ideal financial situation proves to be troublesome in securing a suitable mortgage, but it is also not ideal in that it may keep my partner from having the sense of home ownership and stability they're after. I realize there are risks with this, but I think most of them are less critical when considering that I would be happy to commit to buying this home on my own. It is a home I'd enjoy, it is rentable, it is sellable.

Additional considerations:

  • My partner, having legally migrated from far away years ago, has more reason for wanting to own (building more tangible roots and some equity), and so it makes more sense for them to at least have some ownership and not have me take on all ownership.

  • I have more funds, a stable job, and am younger. This could make it easier for us to get a mortgage if I get involved, but at what benefit and risk to us as partners and as individuals?

  • If co-owning is too complicated, the default would be for them to proceed as an individual. This may even be preferable, to ensure they get the sense of ownership that is an important part of the purchase to them.

  • Setting is upstate NY, USA.

  • Some local home info: looking on the more frugal, practical side; rentable and sellable due to the location and types of homes we're looking at. Price-to-rent ratio is at best ~8 and at worst ~13, in an area with multiple universities where we can find housemates, or can rent or sell if we move out.

  • NY is not very specific. Do you mean the city or somewhere upstate? – Eric Dec 12 '16 at 22:39
  • upstate, not NYC – user51330 Dec 12 '16 at 22:50
  • Is marriage in the future? – Ben.12 Dec 13 '16 at 12:43
  • @Ben.12 yes, could be but we're likely to wait at least 3-5 more years before we get into that ceremony and paperwork – user51330 Dec 13 '16 at 15:36
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You've laid out several workable options. You might try going to mortgage broker and looking at what offers you get each way. I can say that it sounds like your partner will have a difficult time qualifying for a mortgage. That puts you on the first and third options.

Forget about "building equity." You cannot rely on the house you're living in to provide a return on investment. Housing is an expense, even if you own it outright. Keep that in mind when you consider taking from the stream of money contributing to your retirement.

This link is to a blog which really clarifies the "rent vs. own, which is better?" question. The answer is, it depends on the individual and the location, and the blogger in the link explains how to answer that question for your situation. One of the key advantages of ownership is that it gives you freedom to modify the interior, exterior, and grounds (limited by local building codes of course.)

  • "Housing is an expense, even if you own it outright." Great point. – Ben.12 Dec 13 '16 at 4:17
  • Good points, thanks for the article. We've addressed the rent vs. own question. Something the article led me to put into #s: our price-rent-ratio is worst-case ~13 and best-case ~8, which is very favorable for ownership. The types of grounds improvements we'll make will have costs, but are known to also enhance the property value in the long-term (eg. growing the right tree in the right place). – user51330 Dec 13 '16 at 15:33
  • For me, I want to own mainly for freedom to improve grounds, and I can afford it but can also wait. For my partner, they want to own for two main reasons: freedom to improve grounds, and a stable place to call their own home (as noted, they come from another country and have been a renter ever since). – user51330 Dec 13 '16 at 15:33
  • As for the burden of ownership: houses we're looking at would have a rentable room or two which will help, and we're well-suited to take on like-minded people from the nearby university as renters. Being near a few universities, we're also confident in the ability to rent or sell it should we decide to move out. (These are details I'll add to the original question.) – user51330 Dec 13 '16 at 15:33
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Personally I would advise only buying what you can afford without borrowing money, even if it means living in a tent. Financially, that is the best move.

If you are determined to borrow money to buy a house, the person with income should buy it as sole owner. Split ownership will create a nightmare if any problems develop in the relationship. Split ownership has the advantage that it doubles the tax-free appreciation deduction from $250,000 to $500,000, but in your case my sense is that that is not a sufficient reason to risk dual ownership.

Do not charge your "partner" rent. That is crazy.

  • 1
    "Do not charge your "partner" rent. That is crazy." Why is that crazy? – Ben.12 Dec 13 '16 at 4:15
  • I agree with @Ben.12's comment: I don't find it crazy at all to charge my partner rent. We already share (as in, one person pays for the product and one person partially reimburses) groceries, utility costs, and other costs as renters now. – user51330 Dec 13 '16 at 14:07
  • As for only buying what you can afford, that is a good point and inspires this question: ... – user51330 Dec 13 '16 at 14:15
  • The houses we're interested in are not beyond my means (though, I don't think I'd buy a house in cash, even though I can, but that's a different subject). I've suggested to my partner that as a standard, they should not buy a house they can not put at least 10% down on in cash today. My partner can afford that for the houses we're interested in, but it would be a good chunk of their savings (bare in mind they're a recently graduated student who's been in part time and seasonal jobs). They plan on a low down-payment, which friends of ours in the area have done successfully – user51330 Dec 13 '16 at 14:16
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You are thinking about this very well. With option one, you need to think about the 5 D's in the contract. What happens when one partner becomes disinterested, divorced (break up), does drugs (something illegal), dies or does not agree with decisions.

One complication if you buy jointly, and decide to break up/move, on will the other partner be able to refinance? If not the leaving person will probably not be able to finance a new home as the banks are rarely willing to assume multiple mortgage risks for one person. (High income/large down payment not with standing.)

I prefer the one person rents option to option one. The trouble with that is that it sounds like you are in better position to be the owner, and she has a higher emotional need to own.

If she is really interested in building equity I would recommend a 15 year or shorter mortgage. Building equity in a 30 year is not realistic.

  • The 5 D's are important and though we both trust each other we also both see the need to cover our own assess/assets. The complication of refinancing if we split is an important consideration that I don't think I can wade through myself, so it'll be a question for a mortgage broker or lawyer. – user51330 Dec 13 '16 at 16:01
  • On the building equity side maybe equity is not the right word. Equity is important of course, and between a good P/R ratio and planned forced appreciation, there could be some of that. The real importance for my partner is having a home base - coming from another country, the stability ownership can offer is very valuable (or is the flexibility better? In their opinion and situation, a stable place that could be rented seems best.) The freedom to make improvements is also a big draw for both of us, and we think of that as equity, though only some of it will be realistically. – user51330 Dec 13 '16 at 16:03
  • Understanding all that, but the stability of owning a home outright is an amazing thing. So yes you want to build equity, with the goal being 100% equity, otherwise you are just renting from the bank and assuming the responsibility of upkeep. – Pete B. Dec 13 '16 at 16:09
  • Good point about basically renting from the bank. For me outright ownership is more possible and appealing. For my partner, they'll need to leverage debt to make this happen (they've been good at reducing their student and car debt, both of us sharing the goal of being debt-free ASAP and only using it when needed for big purchases or as a way to build credit in preparation for those big purchases). – user51330 Dec 13 '16 at 17:21
  • Being debt free is amazing and actually helps you earn more. – Pete B. Dec 13 '16 at 17:28

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