Your Guide to Co-Buying a House

If you want to own a home but don't have enough money to make the down payment, cover the home's costs, or pay the monthly mortgage, one option is to purchase a home with another person. Though some would-be homeowners purchase a home with a partner, you can also buy a home with a friend, parent, business partner, or relative. Keep reading for important advice when co-buying a home.

Craft an Agreement for the Property

Even if you hope to own the property with the co-buyer for the rest of your life, you must consider what will happen to the property if one of you changes your mind about jointly owning the property. The last thing you want to do is end a relationship or friendship and argue about who gets the house.

Prior to closing on the home, meet with an attorney and draft paperwork that states what will happen to the house if you no longer want to be co-owners. You might agree to sell the home or permit one owner to buy the other owner's share.

Decide Who Will Apply for the Mortgage

Before you apply for a mortgage, you need to decide if both buyers will apply for the loan or if only one buyer will be on the mortgage. It is possible for a buyer to be on the title of the home, but not the mortgage.

You might leave a buyer off the mortgage if they have terrible credit that severely impacts the terms of the loan. It's slightly risky to put a buyer on the home's title and not the mortgage because this buyer isn't legally responsible for repaying the mortgage.

If both buyers have similar credit, it's usually advantageous for both individuals to apply for the mortgage. This usually raises the total buyer income and lowers the overall debt-to-income ratio for the buyers.

As long as one buyer is comfortable being the only person on the loan, you can ask your mortgage lender to run the numbers both ways to see which option provides the best loan terms.

Be Careful With How You Title the Home

When co-buying a home, one of the details you must address is how you want to title the home. How you title the home affects who has current and future ownership of the property.

One option is to title the home with one person's name. This is a good option if someone doesn't want to be listed as an official owner of the home due to tax or legal reasons.

However, the disadvantage of titling the home as a sole ownership in one person's name is that the other buyer has no official legal interest in the property. This applies even if the other buyer contributes to the home's expenses. The court system will often state that the person on the deed is the owner of the home and the only person with a financial interest in the property.

You can sign a contract where you specify that each partner has a financial interest in the home. If one of the buyers doesn't adhere to the contract, you'll need to sue them and take them to court to enforce the terms.

An alternative is to title the home with both co-buyers as joint tenants. With joint tenancy, both co-buyers own equal shares of the home. Should one buyer die, their share automatically goes to the other buyer.

A third possibility is to title the home as tenants in common. The tenants in common title enables you to state that one buyer owns a larger share of the home than the other. When a buyer who holds a home as a tenant in common dies, their portion of the home passes to their heirs.

Ready to achieve your goal of owning a home? Contact Cornerstone Residential Mortgage.