This happens all the time… and it’s not nearly as complicated as you may think. You may have a roomate that you love sharing a space with, an amazing friend or sibiling that you have a great relationship with, you and your partner have been together for years and are looking for a more permanenet space, or maybe you and your friend want to invest in a rental home together!

Should you consider buying a home with them?

It’s not uncommon for family members or unmarried, unrelated people to purchase a home together as either an investment property, a vacation home, or as a way to afford a more expensive house or condo in a certain area.

However, there are some key points to consider before making this type of financial decision:

Consider Your Co-owner(s) Carefully.

This is arguably the most important step before you go any further. Some things to look for in a great co-owner would be:

• Financially sound (has a good credit history for mortgage requirements, no outstanding liens…etc.)
• Is overall a trustworthy, responsible person
• You get-along well. Just because he is a good buddy from work doesn’t mean you should buy a house together. Of course, you also want to have someone you like and will enjoy living with on a daily basis if it’s a home you will share together.

Create an Ownership Agreement

Similar to a rental agreement! With a financial purchase as large as this, it’s important to get everything in writing. You will want to make sure that you are on the same page with how you will own this home together. Somethings to establish in this agreement are:

• How ongoing expenses such as utilities, mortgage, property taxes, homeowners insurance will be divided up and paid
• How an owner’s share will get transferred when necessary. What about renting out your share if you move and don’t want to sell?
• Who gets the tax deduction since unrelated people can’t file a joint tax return?
• Will a third party mediator would be brought in to handle any future disputes that can’t be resolved easily?

Decide on Ownership Title

The co-owners need to agree on how the property’s title will be held, which is basically the type of joint ownership:

• Joint Tenants with Right of Survivorship – This is what most married couples have. This establishes that if one spouse dies, the survivor automatically becomes the sole owner. Some family members or unmarried couples buying together also may choose this type of arrangement and share one title between the co-owners so that the home stays in the “family”.

• Limited Liability Company (LLC) – Some co-owners decide to create an LLC or a trust to hold the property’s title. This makes moving owners on and off the title easier.

• Tenants in Common – Most friends or unrelated owners choose this type of ownership so that each co-owner has a separate legal title. The shares can be equal or unequal percentages depending on how much someone will be contributing toward the home. In this arrangement there is no right of survivorship, so each co-owner can pass along his or her share via will to others outside the ownership agreement. However, the co-owners can make an arrangement to have “right of first refusal” so that the remaining owners can decide if they want to buy out the other owner or his/her heirs if that’s the case.

Make sure to work with your attorney to determine what would be the best type of ownership for your situation and finances.

The Pro’s of Co-owning a Home

• You will likely qualify for a loan easier
• If all of the new borrowers will be occupying the new home together, you also get to share expenses such as splitting the utilities.
• You will get to claim mortgage interest on your taxes, but keep in mind, you’ll have to split the total amount with your co-buyers.

The Con’s of Co-owning a Home

• Possibility of headaches and disagreements down the road, which may need to be remedied with attorneys or through the courts.
• It’s much more difficult to walk away from a mortgage when you have more than one borrower.
• If one of the homeowners suddenly can’t or won’t pay his or her share of the mortgage payment, it will affect all parties and could result in damage to your credit score or even foreclosure.

In short, pursuing a joint mortgage to buy a house with your parents, friends, or other family members can be a great idea if all parties involved are equally responsible and financially prepared.

Buying a home with others – either friends, family members or a partner – can be a wonderful experience but just remember to plan carefully since you will be dealing with them financially over the long term.  But, there are details that need to be worked out before moving forward.  If you are thinking of going this route, let’s talk well before you are ready to start looking at houses.  Email me at mccall@youragentmccall.com and we can schedule a time to talk through what you need to know.