Co-ownership of a home is when multiple people jointly own a property. Co-owning property with family or parents is the most common scenario, but it is becoming more common for people to consider buying a house together even for investment purposes.
When undertaken with care and consideration, co-owning a property can have its benefits, particularly when it comes to being able to afford a home that you wouldn’t have been able to buy on your own. For example, if you co-buy a house with your parents, you can benefit from their credit history and income.
However, everyone involved in the purchase must have a thorough understanding of how the co-ownership process works.
1. Decide on the Type of Joint Ownership
The first and most crucial step in buying a property with multiple owners is figuring out what type of “tenants” you want to be. You will need to decide whether you will be Tenants in Common or Joint Tenants With Right of Survivorship. In both cases, you still own the home, but there are different implications.
Tenants in Common
This type of tenancy is most common among business partners or unmarried people. With Tenancy in Common, each tenant owns their own separate share of the property, the shares do not have to be equal, but each tenant reserves the right to occupy the property. When a Tenant in Common dies, their share of the home goes to their beneficiaries rather than to the other tenants.
Joint Tenants With Right to Survivorship
This is most common amongst married couples, as it means that if one tenant dies, their share of the property will pass to the surviving owners. So, if you share ownership of a home with your husband or wife and your spouse passes away, you will then own all interest in the property, and it will solely belong to you. Unlike Tenancy in Common, with Joint Tenancy, the ownership shares in the property are equal parts.
2. Figure Out Financing
After deciding on the type of co-ownership works best, you'll need to work out your financing, unless you plan on paying all-cash. One of the biggest benefits of co-buying a house is that you can qualify for a larger loan more easily, but all the parties will need to be sure to submit the required paperwork.
3. Search For Suitable Properties
After sorting out financing and setting a budget, you and your co-owner will need to start searching for suitable properties. You can search online, but for the best results, it's recommended to enlist the help of a real estate agent.
4. Handle Potential Issues Before They Arise
Don’t wait for a problem to appear before you solve it. With co-ownership, it’s a good idea to draw up a document that states what will happen in a given situation and have each tenant sign it. For example, if you are Tenants in Common, it’s vital to establish exactly how much of the property you own since it’s not required that you split your interests evenly. You should also decide how any ongoing costs and bills will be paid, so there are no disagreements among tenants over who is responsible for what expenses.
More and more people are buying homes with the help of their parents or other family members. This can be a great way for parents to help their children purchase a home, and can be set up in multiple ways, depending on everyone's goals. It's even possible to get a joint mortgage.
There are two different primary situations to consider when it comes to selling a house with multiple owners. The first is a scenario in which one owner wants to sell their share of the property, but the others do not. The second is where all owners decide to sell.
If you own a share in a property, whether by Tenancy in Common or Joint Tenancy With a Right to Survivorship, you have the right to sell your share in the property at any given time. With co-ownership, you do not own the property outright of your own accord. Therefore you cannot decide to sell the property without the permission of the other tenants, but you can sell your share.
With Tenants in Common, whomever you sell your share to would then take ownership of that percentage of the property. Essentially, they would become a Tenant in Common with the other owners. But because it’s usually difficult to find someone who wants to buy only part of a house, it can be challenging to sell a share of a property as a Tenant in Common, which is why it’s not unusual in this situation for the other owners of the property to buy out that share.
In scenarios dealing with Joint Tenancy, things can be a little more complicated. You cannot Will your interest in a property to an heir or beneficiary, but you do still have the autonomy to sell while you’re still alive. However, if a joint tenant sells their share to someone else, the new owner does not become a joint tenant themselves (they would be a Tenant in Common), but the original owners Joint Tenancy survives. For example, if Jane, John, and Julia own a home as Joint Tenants, but John sells his share to Jack, Jack would be a Tenant in Common while Jane and Julia would remain Joint Tenants.
If all owners of a property decide to sell at one time, the situation is a little less complicated, as there will be no debate over the actual right to sell. The most important aspect here is that the shares and ownership are known and are divided up fairly and equally, as was determined when the house was purchased. This is why outlining the exact shares of the property owned by each individual is essential in the very beginning, as it will prevent conflict surrounding who is owed what in the event of a sale. It’s also advisable to ensure that you seek an agent who is versed in selling properties with multiple owners to make sure that all parties receive fair and equal representation.
Unfortunately, there are times where partners and co-owners may reach a disagreement when it comes to the sale of their property. This is perhaps most common in divorce situations, where a home is co-owned, and the couple cannot reach an agreement about whether or not to sell. Usually, your home is your biggest asset, so what happens when one person wants to sell, and the other wants to continue living in the home?
The simplest resolution would be for the partner who wants to stay in the house to buy out the other. Of course, this is reliant on the idea that the remaining owner can obtain a mortgage to cover the full cost of the house.
If an agreement can not be reached, you can begin an action of division and sale in court. In the case of one party withholding permission to sell, a court may rule to allow the sale under certain circumstances, which can include the court ruling that the sale is being unreasonably withheld.
All in all, buying a home with another person can be a fantastic experience, provided the journey is embarked upon with care taken to avoid potential disagreements. The best way to protect yourself from conflict down the line is to plan for unforeseen circumstances before they arise. Don’t wait until it’s time to sell, or until one partner wants out before you discuss the details of such a situation. It’s always advisable to seek legal counsel if you find yourself in over your head, or you don’t understand the terms of your co-ownership agreement.