What’s In a Title? When Buying a Home, a Lot
You’ve found a home, put in an offer, and are on your way to getting a mortgage. You’re already thinking about where to place your that chintz ottoman your grandmother gave you. But there’s an important step you need to take before signing on the dotted line, especially if you’re buying as a couple. You’ll need to decide how to hold title with your partner—and it’s more important than most couples realize.
The way you title your home determines things like who gets your home in the case of a death, or if your relationship ends. Although those scenarios may seem far away now, it’s important to know the different ways you can hold title as well as what is the right way for you and your partner.
What is title?
Basically, a title is the legal document that says who owns the home. At the closing meeting, the home will be legally transferred into your possession. It’s actually the final paper product of the closing meeting. Sign that document, and it’s all yours!
What are the different ways you can hold title?
There are four different ways to hold title; sole ownership, joint tenancy, tenants in common, and community property.
Sole ownership means one partner holds the title in their name alone. While this means that the partner that holds ownership doesn’t need the approval of anyone else when it comes to the home, it also can be complicated in the case of the sole owner’s death. Unless there is a will stating how the home will be transferred, it can become unclear who the house belongs to. And if you’re married and one spouse decides to take sole title of the home, in many states the spouse not on title will have to formally renounce his or her ownership interest during the closing process.
If you decide on joint tenancy, you and your partner will hold title jointly; in the case of death of one of the partners, the other partner will automatically gain ownership of the house. You can hold title jointly whether you’re married or not; you just need to put both of your names officially on the title.
Tenancy in common allows two or more owners to take fractional interests in a property, with both able to dispose of their part of the property as they wish. This option is often chosen by real estate partners who are not in a relationship. Shares in the property do not have to be equal—for example, one party could own 60% of the property, while the other owns 40%. Each tenant is able to sell or pass on his or her interest in the property to whomever they want without consulting the other tenant.
Community property is a way for married couples to hold title in certain states, including Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In this case, each spouse owns half of the property and can put his or her half in a will either to the spouse or to anyone else they wish.
When to prepare for titling your home
As we mentioned earlier, you’ll be expected to know how you want to title your home during the closing process. You should begin preparing for how you want to title your home as soon as you have an offer accepted on a property. This allows for enough time in case you have questions that require a real estate lawyer. Typically, the closer won’t have enough information to advise you, so it’s smart to confer with a real estate lawyer in case of confusion or questions.
But what if my partner isn’t on the mortgage?
Your partner can still be on the title even if they aren’t on the mortgage. This, too, will happen at closing; the partner who is on the mortgage will then submit a Preliminary Change of Ownership form to add the partner as an owner and should submit this with the closing documentation. At this point, you and your partner will need to decide how exactly you plan on holding title.
How to know which title is best for you
The biggest decider in when it comes to holding title is who exactly you want to pass on ownership of your property in the case of your death. Joint tenancy is a great option for married couples who want to pass on their property to their spouse. But there are reasons to consider other options.
If one partner may encounter credit issues at any point, you may not want him or her on the title. Or if you have children from a previous marriage, you might want the property interest to go to them instead. In this situation, tenancy in common is another great option. Because everyone’s specifical financial and personal situations are different, it’s always best to consult with a real estate lawyer before your closing meeting. This way, you’ll know exactly what is the right way to hold title for you and your partner and can sign on the dotted line without hesitation. And the next step after that? Celebrating the new home that is all yours!
Learn more about buying a home with your significant other and download our free guide at loans.lendinghome.com/buying-together/.