More unmarried couples are buying homes together. What to know before you do

• Unmarried couples make up 18% of all first-time homebuyers for the first time, according to a report by the National Association of Realtors.
• Many young, unmarried couples live together, often for financial reasons.
• While these couples may be eager to own a home, there are a few things they should consider before becoming homeowners.

More couples are becoming homeowners before tying the knot.

Unmarried couples make up 18% of all first-time homebuyers, up from just 4% in 1985, according to a 2022 report by the National Association of Realtors.

The organization mailed out a survey in July 2022 and received a total of 4,854 responses from homebuyers who bought a primary residence between July 2021 and June 2022.

"Unmarried couples have been on the rise [as homebuyers] and now they're at the highest point that we've recorded," said Jessica Lautz, the Washington, D.C.-based vice president of research of the National Association of Realtors. 

Buying a house is a bigger commitment than renting, so while these couples may be eager to own a home, there are a few things they should consider before purchasing a property together.

'Housing affordability really is a struggle'

Many young, unmarried couples live together, often for financial reasons. About 3 in 5 unmarried couples in the U.S. live with their partners, according to a report by the Thriving Center of Psychology.

Splitting the cost of housing, which can be a big part of your budget, makes sense.

Even so, unlike married homebuyers, almost half of unmarried ones — 46% — made financial sacrifices, including picking up secondary jobs, to finance their purchase, the NAR report found.

"Housing affordability really is a struggle, so pulling your finances together as an unmarried couple can make a lot of sense to move forward on that transaction," said Lautz, who is also the deputy chief economist of NAR.

The typical unmarried couple buying a home together for the first time was roughly 32-year-old millennials with a combined average household income of $72,500, according to Lautz. Additionally, these shoppers were more likely than married couples to receive loans — 4% versus 3% — or be gifted money from friends and family — 12% versus 7%.

One reason unmarried people may decide to buy homes with their partners is the strength in numbers that pairing up offers when it comes to qualifying for financing, as real estate prices and interest rates remain high, said Melissa Cohn, regional vice president of William Raveis Mortgage in New York.

While one could argue couples should simply get married if they're already investing in a house, some people may opt to keep things, such as their estates, separate.

"There are reasons why people don't get married; it's not an automatic given these days," Cohn noted.

But unmarried couples should carefully approach making a commitment of this scale.

There are often no legal protections they can fall back on, said Cohn. If one person decides to leave, the other can be saddled with the entire mortgage and may not be able to afford it, she said. 

How to secure each other's investment

"In order to walk away from a marriage, you have to get divorced, so there's more staying power," Cohn said. "If you're an unmarried couple, you have no legal obligation to that other party." 

However, it is counterintuitive for just about anyone to stop making mortgage payments — because it will ruin their credit, she added. 

To protect their investments in the property, unmarried couples ought to carefully consider how it is titled. That helps lay out each partner's legal rights and ownership, as well as what happens to the home if one of them dies.

Talk to an attorney about your options. Those options might include titling the property as joint tenancy with rights of survivorship, if ownership is equal, or as tenancy in common if one partner is contributing more financially.

Couples might also consider using a limited liability corporation or other entity, Cohn suggested. "By taking title in an entity like an LLC or partnership, you can better spell out and define who's responsible for what portion," she said. 

They can also protect their share of investments by outlining them in a property agreement. It defines who's responsible for the mortgage, how much each person is putting into the down payment, who's paying for the insurance and home repairs, added Cohn.

This may be a good idea if one person has a higher income than the other, she added. 

Four factors unmarried homebuyers should consider

Here are four things that certified financial planner Cathy Curtis, founder and CEO of Curtis Financial Planning, in Oakland, California, says unmarried couples should think about before buying property together: 

1. Carefully weigh tapping into retirement accounts for a down payment: While it's generally not the best idea to pull from retirement funds, millennials still have years to recover, said Curtis, who is also a CNBC Financial Advisor Council member. "The reality is, for most millennials, this is where most saving happens."

Funds in a traditional IRA can be used for a first-time home purchase, up to the lifetime limit of $10,000. The amount will be taxed at ordinary rates in the year withdrawn but will not incur a 10% penalty if it is a first-time home purchase, said Curtis.

Roth IRAs can be accessed as well, but the rules must be followed closely, said Curtis. You can typically withdraw contributions at any time without incurring taxes or penalties, but there are age and time requirements for withdrawn investments to count as a qualified distribution.

Many companies allow employees to borrow from their 401(k) plans. An employee can borrow 50% of their invested balance, up to a maximum of $50,000. "If a person has $100,000 or more, they can borrow $50,000," said Curtis. "If they only have $70,000, they can borrow up to $35,000."

Loans must be paid back over five years or in full if employment ends. 

2. Review credit reports and scores to ensure you get the best mortgage rate possible: Make sure there are no inaccuracies, diligently pay your bills on time and reduce your debt levels as much as possible before the purchase. Keep in mind that lenders will look at both partners' scores if both are on the mortgage application.

3. Keep credit activity low: Avoid making any large purchases on credit cards, as well as opening or closing new lines of credit as any of these could affect your credit score.

4. Save money in a high-yield savings account: Instead of keeping your down payment savings in the stock market, consider using a high-yield savings account. "The market could dip right when the cash is needed," added Curtis. "Fortunately, rates are very good right now."