Signing a co-own agreement for a home is a huge commitment and the process can be mentally and financially draining.
Finding the right person to co-own a home with is a lengthy process and several factors play into making the right decision. You must carefully consider your options before making an informed decision and taking the plunge. After all, a co-own agreement is not just a living arrangement, but also a legally enforceable contract.
Co-owning a home with family or friends is a common option most people opt for. A joint homeownership agreement can be made between any combinations of individuals with shared mutual trust. At Cher, we know the home-buying process can be made easier with the right people. So what are the ideal qualities one should look for in a co-owner?
Check out Cher to find out more about the home-buying process.
Qualities of an Ideal Co-Owner
Property co-owners have to work together closely from the get-go. Signing a co-own mortgage is just the first step. If it’s the right first step, the relationship will probably span years or perhaps even decades.
The partners might live together under the same roof and they’ll both need to pitch in for maintenance and other expenses. A problematic roommate can be stressful enough, not to mention cause legal issues to arise.
Joint ownership of a house with parents or friends might be the best option, depending on personal relationships. Since trust is the cornerstone of any agreement, take a step back and evaluate the relationship dynamics before signing anything. How strong is your relationship with your significant other? Do you and your friend get through conflict easily? What are your intentions for buying a property? How often will you use the property?
If a group of friends co-own a property, and one of them is a party-animal while the others want a place for peace and quiet, things can get messy very quickly.
If you’re not sure you want to live in the same place as your friends, you can skip potential conflict with the people you love with Cher. Our social network allows you to connect with other people looking for a house, allowing you to find prospective housemates with similar interests and needs.
Reaching common ground before entering the agreement is important. This requires complete transparency of financial statements, current debt, debt to income ratio, and long-term plans with respect to repayments must be cleared up beforehand.
Benefits of Co-Owning a Home
Owning a property for a fraction of the price is a tempting prospect. A spare vacation retreat in the hills or by the beach can come in handy when it’s time to relax.
However, there are other more practical benefits.
Shared ownership of a house can open up co-owners to several possibilities. Banks, mortgage brokers, and private financial institutions are more likely to grant a mortgage or loan to a combination of individuals or a couple over a single person. This is because of the simple logic that more people means more chances of loan repayment. Shared liability and responsibility among the applicants are some of the benefits.
Owning a property can be costly, especially during rough weather conditions. Several maintenance costs go into owning a property, all of which can be shared among co-owners. If the co-owners live in the shared property, they can also share living costs. Buying a house with parents or spouse can be a long-term investment which saves one a ton of money in the long run.
Easier to Qualify for a Mortgage
The first benefit comes before even owning the home. With two or more owners, it’s always easier to qualify for a mortgage. Lenders will look at your income, credit score, current debt, and even more to figure out if you can afford the home comfortably and are a reliable option. With two people signing, it’s even easier to meet — and exceed — these minimum loan requirements.
Splitting monthly expenses
There are a lot of expenses involved with owning a home. There’s not just the mortgage each month, but utilities, repairs, and any kind of required maintenance. This can add up fast. But if you’re splitting the costs with a friend, it becomes a lot more doable. Think of all the extra stuff you can do with that amount of savings. You can pay off a debt or invest it back in the home.
Home equity gains for all
You build more equity the longer you make mortgage payments. Equity is the difference between your new home’s value and the remaining mortgage you owe. If you guys decide to ever leave the home you co-owned together, you can split the proceeds from its sale and put the money towards payments on your new place. Basically, you’ll never leave with nothing!
Tax breaks for co-homeowners
Mortgage payments are tax-deductible. When you own a home with a friend or family member, you can discuss how you’d like to split the mortgage interest between your two tax returns. Nothing wrong with getting more taxes back next season!
Types of Titles
A myriad of rules and laws govern real estate ownership.
For a full explanation of the area or state-specific laws and the finer points of a co-own mortgage, seek professional legal advice. You can also contact Cher with any questions. The common options are a tenancy in common, joint tenancy, or a limited liability company.
Tenancy in common means all the owners own the whole property undivided. Regardless of living arrangements or maintenance costs, all co-owners own a portion of the whole building. This is most common amongst two or more unrelated individuals who own a duplex or a triplex. It’s important to work out each owner’s rights and responsibilities beforehand.
Joint tenancy includes a clause of a right of survivorship. In macabre terms, the survivor gets the property. If two people own a property and one of them dies, the other owner will gain full ownership of the property. With the tenancy-in-common option, the ownership passes on to the legal heir of the co-owner. Joint tenancy is a good option for married couples and families and is typically financed by a single shared mortgage.
The third option is forming a limited liability company (LLC). When a group of owners registers an LLC, they become a separate legal entity. This arrangement provides liability protection to individual co-owners but has its own drawbacks.
For house hunting made easy, check out our services at Cher.
Financing Options for a Co-Owned Home
Co-owning a home makes both of you liable for the full amount, since you become “jointly and severally liable” for the mortgage. This is why it’s so important to pick a co-owner you can trust, since you’ll have to pick up the slack to avoid penalties or foreclosure if the co-owner doesn’t pay. You’ll probably want to discuss financial situations before agreeing to co-own with someone, including a discussion about reimbursements or the percentage of ownership each individual has.
Another thing to discuss is the division of responsibility for financing. You’re both severally liable for the mortgage, so it’s important to figure out the best way to make the payments work for both parties. Maybe one of you has a bigger savings, but makes less each month. For them, it might make more sense to pay the majority of the down payment and then pay a smaller portion of the monthly mortgage payments.
When it comes to finances, you’ll also want to consider how you’ll make mortgage payments if one of you dies (as depressing as that topic may be). In this scenario, it makes sense to take out life insurance policies on each other, so if one owner dies, the other can still manage the payments alone.
Legal Restrictions on Shared Housing
Another important thing to consider when discussing co-ownership, is the legal restrictions surrounding shared housing. Some neighborhoods may have restrictions on shared housing, while other communities might have limited shared housing options.
One of these restrictions comes in the form of zoning rules. Residential neighborhoods often have different zones, divided by a planning agency. Each zone has their own set of rules, designed to control the neighborhood’s atmosphere and quality. It’s also a form of population control for the area. You’ll want to find out the zoning rules for each neighborhood you consider purchasing in.
Here are some things to inquire about:
- Restrictions on how many people can live in a home
- Limits on building sizes and the number of buildings you can have on each lot
- A building’s height and proximity to the property line
- How many off-street parking spaces are available for multi-unit housing
So how do you even find this stuff out? You can ask the neighborhood’s planning agency or check the city’s website. Even if you end up finding a law that concerns you, just remember that you can possibly get a special permit. You can also request an exception to the zoning rule. Just remember that the planning agency will always have the neighborhood’s development and livability in mind when it comes to these changes.
When it comes to co-owning a home, you often have to remodel the house if it’s not already made with two separate resident spaces in mind. But before you dive in to a remodeling project, remember to check the neighborhood’s building codes. Multi-unit properties have a lot of strict rules, including fire safety requirements and pool installation regulations.
Planned Community Restrictions
Lastly, don’t forget about planned communities’ restrictions. Common interest developments have commonly owned areas, like streets, swimming pools, lobbies and the like. When they are created, there are often conditions and restrictions involved that are much more strict than a single-family unit’s would be. This protects property value for owners in the community by allowing them to enforce rules they created. Remodeling might be off-limits or face strict regulations, so always make sure to find out beforehand.
Examples of Co-Ownership
Practically any combination of individuals can enter into a co-ownership deal. The most common options are:
- A new college graduate with their parents or step-parents.
- Co-own mortgage with fiancé or spouse.
- A group of childhood friends or college classmates.
- Two or more colleagues or individuals.
- Two or more siblings and cousins.
- Two or more families buying a shared home.
- Two or more Cher users with similar housing needs.
There are several banks and brokers offering co-ownership mortgage loan programs. Long-term loans with low-interest rates are available. Adjustable-rate mortgages according to the co-owners’ needs can also be negotiated. There’s also the option of government-backed mortgage loan programs introduced to encourage homeownership.
With multiple signatures, the chances of a home loan being granted are usually high, even with low credit scores. The Federal Housing Administration loans (FHA) and VA home loans (for veterans) are government-insured loans that are relatively easier to apply for and obtain. These are ideal options for couples or individuals who have bad credit but want to own a house together. The location of the co-owned property can also factor in the mortgage option.
There are also several online lenders potential co-owners could approach to launch the process as quickly as possible.
Occupant vs Non-Occupant Co-Buying
When it comes to co-buying a home, you aren’t required to both live on the property. Sometimes both parties want to live in the home, which sometimes can require remodeling and comes with some specific laws, which we will go over soon. Other times, there will be one person living in the home and then a non-occupant co-buyer who only bought into the property as an investment or help out a friend or relative. In that case, they will sometimes pay their part until the other co-owner can afford to buy them out.
Then there are people who both co-own a home as an investment. The costs are split in a specific way and the earnings from rent or resell are also split between them in a particular way that was agreed upon beforehand.
Co-owning a home can be a great way to improve one’s buying power, and get into an attractive market easily. However, always be sure those one is co-owning with is trustworthy and has been thoroughly vetted. It’s a big responsibility and it’s very important this form of diligence is carried out before entering into a partnership. Sometimes, it’s easier to be housemates with people who aren’t your close friends, eliminating emotional conflict and allowing you to remain objective. Either way, get started with the home buying process with Cher.