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Buying a House With Someone

 two people unpacking boxes in living room at new home

Becoming a homeowner is a significant financial and legal investment, especially if you are single. If you buy a house by yourself, you will bear all the costs of purchasing and maintaining your home. Buying a home with someone else, like a friend or a partner, is an alternative path to home ownership.

There are several benefits to buying a house with another person. Co-ownership can help cover the costs of maintenance and upkeep. Some couples buy a house together with plans to get married later. Buying a property with another person is also a great investment opportunity.

Co-ownership has advantages and disadvantages that all parties should consider before proceeding. Buying a house with the wrong person could have harmful consequences.

This FindLaw article explores the advantages and disadvantages of co-ownership, different types of ownership interests, and more.

Choosing a Co-Owner

Before hiring a Realtor or attending open houses, you should vet your prospective co-owners. Once you close on the house, it will be tough to back out of the real estate transaction. Moreover, if you need a mortgage, and your partner is not financially responsible, it will affect your personal finances. You and your prospective co-owner should talk transparently about your finances.

Vet Your Prospective Co-Owner

Having these discussions before you start the homebuying process will save you time and help all parties prepare. Here are a few things to consider during your conversation:

  • Credit scores: Lenders will pull a credit report for both parties. A low credit score will negatively affect the interest rate offers for your home loan.
  • Debt: All parties should discuss any debt they currently owe. Mortgage lenders will calculate a debt-to-income ratio (DTI) for all parties. Your debt-to-income ratio represents the amount of your current income that goes toward your debts. Creditors use this number to determine your creditworthiness.
  • Room to improve: If you or your prospective co-owner have bad credit, repair your credit first. Pay off any credit card debt, and challenge any errors on your credit report.
  • Savings: Buying a home comes with many out-of-pocket costs, and you want to ensure all parties have enough savings to cover things like an upfront down payment and closing costs.

Make sure you have a complete picture of everyone's finances before you move forward. If you take out a mortgage loan for the house with your prospective co-owner, you are both responsible for loan repayment.

Protect Your Financial Health

If you partner with someone with bad credit and a history of not paying their bills, you risk your financial health. Qualifying for a home mortgage is only the first step in buying a house. Poor credit could impact your ability to refinance your home or get other loans.

Advantages of Buying a House Together

Buying a house together is not for married couples only. Many unmarried couples choose cohabitation in a shared house. Groups of friends can split a home purchase as well. Business partners may buy investment properties together.

There are many advantages to buying a home with another person or people. These advantages include but are not limited to the following:

  • Pooled resources: When you buy a home with another person, ideally, all parties will pool their money and other resources. This decreases the burden on one person and expands all of your choices. You can afford a bigger home or one in a better neighborhood with combined resources. And these pooled resources include more than just mortgage funds. You can split other expenses and household chores with a co-owner.
  • More money for a down payment: With combined finances, you can give a larger down payment and perhaps lower your monthly mortgage payment and mortgage interest.
  • Companionship

Disadvantages of Co-Ownership

Considering the disadvantages of co-ownership will help you create a balanced picture of what you may experience. A few disadvantages of co-ownership include:

  • Financial risk: If your co-owner cannot or will not contribute their share of the mortgage, your credit score may take a hit. Once you sign the loan agreement, you and any other co-owners are responsible for the entire mortgage. Any missed payments will go on your credit report even if you pay your own share.
  • Unequal responsibilities: Owning a house together is different from being roommates. It is relatively easy to walk away from a roommate situation. You can pay off the balance of the lease or find a subletter to take over your spot. Buying a home is a much more significant commitment on several levels. A house needs more maintenance and care than an apartment. If your co-owners do not do their share of the work, it will inevitably fall to you.

These are only some of the disadvantages of co-ownership. Carefully consider all possible scenarios before making this huge commitment. This is especially true if you borrow money to pay for the house. The term of most mortgage loans ranges from 15 to 30 years. You want a co-owner for the long term.

Ownership Interests

As you prepare to buy a house with another person, consider the type of ownership that best suits your unique situation.

deed is a formal written document that conveys title to a property. When there is only one buyer, the buyer is the sole owner on the deed. When purchasing property with more than one person, the buyers take a shared ownership interest.

A few types of home ownership for multiple buyers include:

  • Tenants in common
  • Joint tenants with right of survivorship
  • Tenants by entirety

Tenants in Common

With a tenancy in common (TIC), each buyer owns a share of the same property. Buyers jointly determine their percentage of ownership, which the title should reflect. Co-owners can have an equal share (50/50) or an unequal share (say, 70/30).

Tenants in common have a right to sell (or convey) their share of ownership as they see fit, even if the other owners disagree. However, a tenant in common cannot sell more than their share in the property. When a tenant in common dies, their interest in the property passes to their heirs. If you are a co-owner, you could share a property with strangers.

Joint Tenants With Right of Survivorship

With a joint tenancy with the right of survivorship (JTWROS) deed, each owner has an equal interest: 50/50 for two owners or one-third interest for three owners.

With joint tenancy, an ownership interest passes to the surviving owners after one owner dies. The remaining owners will take the deceased owner's interests equally. A co-owner in a joint tenancy cannot pass their property interest to their heirs through inheritance. Transfer of ownership to the co-owners occurs automatically upon death. This avoids the property having to go through probate.

Joint tenancy with a right of survivorship is most common between close family members. The deed must clearly state "joint tenants with right of survivorship."

Tenants by the Entirety

Married couples may take ownership as tenants by the entirety (TBE), a form of joint tenancy with the right of survivorship. Each partner has equal property ownership, but it's not 50/50. Each partner owns 100%.

If one partner has creditors who want to seize the property to pay a debt, they can't because the property belongs 100% to the other partner. If one partner dies, the property passes immediately to the other party without going through probate.

As you consider types of co-ownership, keep home equity in mind. If you ever need to tap into your home's equity, your ownership share may determine how much equity you can get.

Co-Ownership Agreement

A co-ownership agreement can help you and the other owners manage conflict. This agreement can lay out the rights and responsibilities of each owner.

Consider the following before you draft an agreement:

  • Expectations regarding the use of the property
  • Expectations of other owners
  • Expenses (include property taxes)
  • Division of household duties
  • Overnight guests
  • Pets
  • Furniture

Include a right of first refusal clause in the agreement. This allows you to buy a co-owner's shares of the property if they decide to sell their interest.

Selling Your Ownership Interests

Owners have the right to sell or transfer (convey) their interest in a property during their lifetime. However, selling part-ownership in a house can be difficult because a house is not easily divisible. As a joint owner, you can only transfer your interest in the property. All co-owners have to agree to sell the entire property.

Property owners may force the sale of the property or a partition. Owners in a tenancy in common or joint tenancy with the right of survivorship can petition the court to partition the property. If the property is easily divisible, like an open plot of land or a duplex, a joint owner may be able to obtain a "partition in kind" to divide the property.

Alternatively, a "partition by sale" forces the sale of the property, even if the other owners do not want to sell their share. After a forced sale, the court will distribute the profits based on each former owner's ownership share.

Get Legal Help

Home ownership is a significant investment. Before you commit to a lengthy mortgage with another person, you should seek legal advice. An experienced real estate attorney can help you at every stage of the homebuying process. A lawyer can help you vet your prospective co-owner. They can help you draft a co-ownership agreement and review your home sales contract. Speak to a qualified real estate attorney today.

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