What you need to know about co-owning a house

Home prices have increased at a staggering rate in 2021, leaving many people wondering whether or not they can afford to own a home on their own.

In the third quarter of 2021, home prices in the United States rose 18.05%, according to the Federal Housing Finance Agency. As a result, many people, especially the younger generations, feel they have been deprived of property, a key part of the American Dream.

If you want to own a home but aren’t sure you can afford to do it on your own, condominium could be a solution. Here’s what you need to know about how it works, along with the pros and cons to consider.

Why condominiums are on the rise

The average age of home buyers hit an all-time high in 2020 at 55, according to the National Association of Realtors. The increasingly unaffordable nature of homeownership has prompted many potential homeowners, especially younger ones, to seek alternative solutions.

“Millennials are a very creative generation,” says Erika Rasure, assistant professor of business and financial services at the University of Maryville. “But when you already have so many of these financial barriers, your options are limited, and so is achieving that American dream.”

Many people who feel dear to own a home have joined friends and family in co-buying a home.

In the first quarter of 2018, 17.4% of all single-family homes were purchased by unmarried coacheteurs, according to ATTOM data solutions. In 2021, this number is estimated at 25%, according to CoBuy, a company that simplifies the process of co-buying a home.

But sailing timeshare with someone you’re not married to can be a little trickier.

How does the co-ownership work?

Co-ownership is when you buy a house with one or more other people, such as a pre-marriage spouse, relatives, or close friends. All of the co-owners will be on the title and probably also on the mortgage.

The group will have to decide how to keep the title. The two options include joint rental and joint rental:

  • Shared rental. With this option, the shares of the property are not divided equally between the owners. Rather, each person’s share of property is equal to the amount of money they invest in the property. Having said that, each person has equal rights to all areas of property. Additionally, each owner chooses who will receive their share of the property upon death, so it will not necessarily go to the other owners. If an owner wants to sell her share of the property, she must get the consent of the other co-owners.
  • Flatsharing. When buying a property with friends or family with this option, each person shares equal ownership of the house, regardless of how much they have invested. However, no one can choose their own beneficiaries in the event of death. Instead, the surviving owners automatically take over the deceased’s share, dividing it again equally. In addition, each owner can sell his share of the house to another person without the approval of the other co-owners.

“One of the main reasons for choosing condominium is to avoid the property going through probate or to protect it from creditors (if an owner dies),” says Jesse Sheldon, Director of Operations and Broker at Gordy Marks Real Estate.
When you consider both, consult a real estate lawyer to help you determine the best path for your group of co-owners. Also note that co-owning a house with parents, other family members, or friends does not mean that all co-owners must live in the house.

Regardless of how you choose to hold title to the home, each mortgage owner will also be responsible for the debt.

What type of loan do you need?

When you buy a property with friends or family, you don’t need a specialized mortgage. Lenders are more concerned about your home ownership plans – whether it’s a primary residence or investment property – and your creditworthiness.

Therefore, it is important to take the time to shop around and compare different loan programs to determine which one is right for you. Consult with a mortgage broker or loan officer to get an idea of ​​the options that are best for you and that best meet your needs.

Keep in mind, however, that there may be limits on the number of people who can qualify for a loan. For example, Fannie Mae’s Desktop Underwriter, an automated underwriting system that lenders can use to conventional and government loans, only supports up to four borrowers. If you want more, you’ll have to go through what’s called manual subscription, which can be a complicated process.

Finally, although having a co-borrower with a higher credit score may make it easier to get approval, the interest rate on the loan will be determined by the lower credit score on the application. So think carefully about who you want to buy a home from.

Examples of co-ownership

If you’re wondering how to buy a home with multiple owners, here are a few examples:

Co-ownership of a house with your friends

Suppose you and two friends all want to own a house, but no one can afford it on their own. As a solution, you decide to buy a property together. By buying a house with a friend or several friends, you will all be living in the house together.

In this scenario, you decide on joint title deed so that you all have the same property, and you all decide to be on the mortgage. You will each have the same property and the same responsibility for paying the mortgage.

If a friend dies, that person’s share is divided equally among the other owners. And if at some point you decide to sell your share in the house and move out, you can sell it to your co-owners or to someone else. Either way, you can do it without permission.

“There are a lot of advantages in a market like Seattle with a high barrier to home ownership,” Sheldon said. “Bringing together a group of friends who earn an average salary will allow you to have a spacious home and enjoy the great appreciation that we are seeing.”

Co-ownership of a house with your parents

In another example, let’s say you want to buy a house but don’t have enough money for a down payment, or your credit score isn’t good enough to qualify on your own. You can ask your parents to participate in the down payment and be a co-borrower on the loan in exchange for a share of the property. However, you alone will occupy the property.

In this case, you can choose the joint rental, where your share and that of your parents are equal to the percentage of the deposit you pay. And while you are both equally responsible for the mortgage, you can choose to make the full payments yourself.

Advantages and disadvantages of co-ownership

Depending on your situation, there are both advantages and disadvantages of owning a home with a pre-marriage partner, friends, or relatives. Here’s what to keep in mind before you decide to go this route:

  • Sharing a down payment and mortgage payments can make buying a home more affordable.
  • Getting help with a down payment and mortgage application from a parent can help you get into a home when you can’t do it on your own.
  • You can start building home equity sooner than you can on your own.
  • If all the owners live in the house, you could save even more by sharing utilities, maintenance, repairs, and other expenses.

  • All of the co-owners on the mortgage are also responsible for paying the debt, even if one of them cannot pay their share.
  • The interest rate on the loan will be determined by the borrower with the lowest credit score.
  • Co-borrowers may run into problems if one wants to sell its share, even if it does not require the consent of the others.
  • A death among the co-owners can create a problem if it is a co-ownership and the deceased has chosen an external beneficiary.

Tips for buying a home with multiple owners

If you are planning to buy a home with friends, relatives, or anyone else, it is important to think carefully about the process to make sure it is a good experience for everyone involved.

For starters, only consider this type of arrangement with someone you implicitly trust. You’ll also want to talk about credit scores and finances early on in the process. Because it can be risky to let a co-owner out of the mortgage – leaving them without equal financial responsibility for the debt – some may need to work out. improve that person’s credit before starting the process.

Also, it is a good idea to hire a real estate attorney to help you determine the following:

  • The type of title.
  • How the shares will be divided.
  • How the current financial responsibilities will be distributed.
  • What if an owner cannot shoulder their share of these responsibilities.
  • How the shares will be transferred on the death of a co-owner.
  • What if an owner wants to leave the arrangement.

“There’s always that risk that there’s a debacle, or there’s a change in the financial picture, or what if the market collapses,” Rasure said. “I think the biggest risk is poor planning and not thinking about those human and life experiences that could really destabilize us. The biggest risk is not having important and critical conversations and failing to write agreements that really specifically state in case this or that happens, that’s our plan. “

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