There are many benefits to homeownership. However, it is often one of the largest expenses an individual can make in their lifetime. If you are an aspiring homeowner, buying a home with your family or friends could be an option.
Co-buying a home involves buying a house with one or more people, commonly a partner before marriage, relatives or close friends. This arrangement can make homeownership more affordable in some cases, but it also means you have a shared a liability for the debt. Before moving forward, keep in mind that co-buying can put a strain on your relationship, and your credit score, if either party fails to hold up their end of the agreement.
How Titles Work When Co-Buying
You and your co-owners will need to decide how to hold the title, which will outline how ownership is split and how beneficiaries are determined. The two primary options are joint tenancy and tenancy in common:
- Joint tenancy:
- Each person shares an equal, undivided ownership in the home regardless of how much they invested.
- Owners do not get to choose their own beneficiaries in the event of death. Instead, the surviving owners automatically take over the deceased person’s share and divide it equally among them.
- Each owner can usually sell their share in the home to another person without the approval of the other co-owners.
- Tenancy in common:
- Each person does not share equal ownership in the house. Instead, ownership shares are equal to how much a person invested in the property.
- Each owner is able to choose who receives their share of the property upon their death.
If you are unsure which title arrangement works best for you, consider speaking with a real estate attorney.
How Mortgage Loans Work When Co-Buying
When buying a property with one or more people, you do not need a special mortgage loan. Some lenders may limit the number of people listed on the loan, so you may want to compare several lenders before making your final decision.
However, lenders will review the loan application for combined incomes, assets, debt-to-income ratios and credit scores to determine your collective eligibility. Having multiple incomes or a co-borrower with strong credit can make it easier to qualify.
It's important to note that, although not all co-buying arrangements require each person to live on the property, each of the listed co-borrowers is liable to make regular payments. If one person cannot pay, someone else will have to pick up the full payment to avoid defaulting on the loan. Failure to make your payments on time can damage your credit score.
Whatever your arrangement, co-buying and co-owning may inspire the need to renovate a property to better fit those living there. Whether that means creating additional home offices, converting or reconfiguring bedrooms, closets or dining rooms, building an accessory dwelling unit, finishing a basement or adding or updating a deck or patio, speak with your lender to see what loan options may be available to you.