What to Know About Co-Owning a Home

Read Time: 5 minutes

Over the past five years, home prices have been steadily increasing across the country. This has made many parts of the country unaffordable, especially for first-time homebuyers. 

Despite the price increases, many who still want to become homeowners are looking for creative ways to make it happen. Instead of purchasing a home independently, they’re doing it with friends and family.

Not only does this reduce the down payment each person will need, but it will also lower each owner’s monthly mortgage payment.

However, before purchasing a home with someone else, it’s essential to understand everything that goes into co-owning a home.

How does co-owning a house work?

Buying a home with someone else is similar to any other purchase. Each person will be on the title, and everyone will most likely be listed on the mortgage.

The most significant difference will be how the title between owners is held. This is important because it will decide how ownership of the house is split.

The two main title options when co-owning a house are joint tenancy or tenancy in common. Here’s how each works.

Joint Tenancy

When buying a house with joint tenancy, each person will own an equal share of the house no matter how much they invest in the down payment. If someone on the title dies during ownership, their portion would not be passed down to a beneficiary.

Instead, their ownership would transfer to the surviving owners, who would share it equally. 

If one of the owners decides they want to sell their share in the house, they can do so without getting permission from the other owners.

Tenancy In Common

With a tenancy in common title, each person’s ownership percentage is based on their investment. If one owner had a larger down payment, they would have a more significant ownership stake in the house.

Plus, with a tenancy in common, each owner will be able to choose a beneficiary for their ownership stake if they were to die.

How do mortgage loans work when co-owning a house?

When applying for a mortgage as co-borrowers, the process works much like if you were buying the house yourself. There aren’t unique mortgage products you need to know about. You’ll choose between conventional, FHA, or another type of mortgage that fits your needs.

When you apply for a mortgage and become a co-borrower, each person is liable for the actions of others. If one owner fails to make their share of the mortgage payment, the others must cover the cost. Otherwise, the home could end up in foreclosure. 

When you start the application process, the lender will request that each borrower submit the following information.

  • Driver’s license or government-issued ID
  • Social security number to pull your credit report
  • Name of current employer
  • Previous two years’ tax returns (if you’re self-employed)
  • Pay stubs or W-2 to prove your income
  • Bank and investment statements

When comparing lenders, be aware that some limit the number of co-borrowers you can have on the mortgage. Depending on how many people purchase the home, this should be considered.

Tips for buying a home with multiple owners

If you’re planning to purchase a house with friends or family, there are a few things to consider to ensure the process goes smoothly. 

Buy a House Everyone Can Afford

Before looking at houses, establish a budget for what everyone wants to pay. Consider the down payment you’ll use and how much each person can afford monthly.

Affordability is likely to vary from person to person, so make sure whatever amount you decide will be manageable for each person involved.

Hire a real estate attorney

It’s also a good idea to hire a real estate attorney to determine how the arrangement will work. This includes the following items.

  • What type of title will you use?
  • Will the house be equally owned or divided based on investment?
  • How will any financial responsibilities after the sale be determined?
  • What does the process look like if one owner wants to sell their share of the house?
  • How will you approach a situation where one owner isn’t holding up their end of the agreement?

Understanding how you’ll approach uncomfortable situations before they arise will make them easier to handle if needed.

Plan for financial emergencies

Emergencies happen without any notice. It could be the loss of a job or a broken air conditioner. If more than one person owns the home, it’s crucial to have a plan in place if and when one of these emergencies happens.

Discuss whether you want to start an emergency fund for the home to cover any unforeseen expenses. If one person is going to cover the extra expenses, how will that person be paid back?

These are all things that you need to discuss and figure out before purchasing the home.

Pros and Cons of Co-Owning a Home

Pros

  • Larger downpayment: Because more owners typically means more total income, you’ll likely be able to afford a larger home. 
  • Split costs: Because you’ll be splitting the cost of homeownership, it should be more affordable than trying to make it work yourself.
  • Easier to qualify: Although the lowest credit score will be used to determine your creditworthiness and interest rates, your total income will make it easier to qualify.

Cons

  • Tension in relationship: If anything doesn’t go as planned, it can cause tension in your relationship with the other co-owners.
  • Eligibility based on lowest credit score: If your co-borrowers have a lower credit score than you do, it could negatively affect the outcome of your mortgage. Because credit scores typically influence interest rates, a lower credit score could mean you’ll need to settle for a slightly higher rate than if you applied independently.
  • Each person is liable: If one co-owner has financial difficulties, it can affect everyone involved. No matter the circumstances, monthly mortgage payments will need to be made. If one owner cannot make their share of the payment, other owners must cover the amount or risk defaulting on the loan.

The Bottom Line

With housing prices as high as they are, co-owning a home has become a popular choice for many. By combining your cash and finances, you can afford a home that you might not be able to afford on your own.

Sean Bryant

Sean Bryant is a Denver-based freelance writer specializing in personal finance, credit cards, and real estate. With more than 15 years of writing experience, his work has appeared in many of the industry’s top publications including Time and Investopedia . He holds a Bachelor of Arts degree in economics.

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