Millennials More Likely to Cohabitate Before Marriage: Crunching the Numbers

Couple buying their new home

Several studies in recent years have found that millennials are more likely than previous generations to live together and even buy a home before marriage. The Pew Research Center finds that while only 22 percent of millennials are married, compared to 29 percent of Generation X-ers in 1997, the percentage of young adults 18-29 living with a partner to whom they are not married has increased from 5.8 percent in 1997 to 9.2 percent in 1997. 

The Pew Research Center also found that young adults born after 1980 were more likely to cohabit than any previous generation. Conversely, an article from Bustle finds that the number of adults living with a spouse has actually dropped to about 50 percent, finding that the failing rate of marriage is a large factor.

In April 2013, Coldwell Banker Real Estate found in a study that 1 in 4 millennials actually purchased their first home with their current spouse before they were married, compared to 14 percent of respondents aged 45 and over. Time’s MONEY found in a poll of 500 millennials that 40 percent believed it was a good idea for a couple to own a home together before marrying, and 37 percent believed the purchase should take place before a wedding.

Buying a home is a huge investment for anyone, but when buying a home with a partner, engaged or happily dating, MONEY advises to save yourself and your loved one heartache by looking at your finances and making sure your home ownership goals are aligned first.

MONEY suggests comparing credit scores first. It is imperative to understand your partner before moving in together, but that also means understanding their credit-worthiness, as well as their debts. If one partner has a lower score, this could determine how your property will be titled.

“Before you even talk to a lender, talk with your significant other about where you want to live and what type of property you want to buy,” Wells Fargo Home Mortgage South Carolina Sales Manager John McNeill said. “Have a candid conversation about your respective credit situations, about how much debt you each have, how much money you each have to put toward the purchase, and whether you’ll both be on the note. Sorting these things out will make the process of buying a home more smooth and set you up for successful long-term homeownership.”

If you are not married to your significant other, a creditor will not look at you as a single unit (as with married couples) but as two individuals, even if you apply for a loan together. This can be a good thing if one in the relationship has stronger credit; you may be able to receive better rates. However, if you choose to have only one name on the loan you may not be able to receive as high a loan because you only have one income record. Further, this leaves one person in an insecure state, in the event of a breakup. In an interview with NPR, Galena Rhoades addressed this issue, advising young couples taking the next step to talk about this possibility when making a decision, and to have a contingency plan.

MONEY takes this concept a step further by suggesting getting your agreement in writing. By involving a real estate lawyer to draw up a written document, you can outline all of the details of your agreement with your partner, down to the percentage of equity each individual is designated, or even the stipulations of bill payment. Cater your agreement to you and your partner’s wishes, and keep peace of mind in knowing each individual’s interests are protected.

When searching for a home, it is also important to have similar interests and realistic goals in place, Wells Fargo suggests.  This can include where your home will be located and what type of property you intend to purchase.

Looking at the actual purchase of the home, couples should discuss their mortgage as well as debt. When cosigning a mortgage, both parties are completely liable for the debt. Again, in the case home ownership does not equate to relationship bliss and one individual stops paying, the other would be responsible for payment. MONEY and Alan Moore, co-founder of the XY planning Network, advocate choosing a home with a mortgage that can be paid on one income. This is good advice in the case that something unexpected happens, such as a hospital visit or car problem, the mortgage will still be affordable.

A final step before you make the move is how your property is titled. There are three options: one sole owner, “joint tenants” or “tenants in common”. Sole ownership means that one partner has no equity in the investment, and is therefore not recommended in the case of cohabitation. Being tenants in common allows each person to have a percentage of investment in the property. This percentage is determined in your deed. Joint tenants would mean equal ownership.

Kevin Reardon, a financial adviser, tells MONEY that opening a joint account is a worthy idea before home ownership. This allows the couple to streamline bill payments and budget accordingly, when expenses are automatically deducted each month.

Taking the dive into home ownership with your significant other is an exciting decision that may seem somewhat daunting, but taking the proper steps before and during the process can assure a happy arangement for you and your partner.