Buying a House with a Relative or Friend

Image by Iakov Filimonov from Shutterstock

You may be looking for ways to make the transition into homeownership a little more affordable or perhaps you dream of owning a vacation home. In these cases, combining resources with a close friend or relative may be a good option. Working together can provide you with more buying power and lower monthly payments but be sure you’re prepared to share this major financial investment before you make a final decision. 

Consider these points before moving forward with a joint homeownership arrangement:

Mortgage application: One of the toughest parts of co-buying a house is determining how to handle financing. Before you begin your property search, discuss who will apply for the mortgage. If you opt to apply jointly, understand that all applicants will have to provide credit history as part of the process.

Property ownership agreement: It’s a good practice to hire a lawyer to work with you on a property ownership agreement. The agreement should outline details like ownership percentages, how the mortgage payments and maintenance tasks will be divided and what happens if you want to refinance or sell the property. Establishing a property ownership agreement at the outset prepares you to more easily resolve issues or make important decisions about your property as time passes.

Form of ownership: The form of ownership you chose will have a significant impact on your legal right to the property. It is advisable that you choose a type of ownership that fits your relationship. Some of the options that you can consider are:

• Joint tenancy with right survivorship: This option is perfect for longtime partners. If one partner passes away, their share is awarded to the other partner.

• Tenancy in common: This option allows a party to inherit the ownership of a property from another individual. In this case, when a partner passes away, their share will go to their heir while their co-tenant retains their percentage of the property. A challenge with this option is that the heir may not want to share a property with the original partner and could force a sale.

Co-buying a home can be an excellent opportunity and a great arrangement. However, it is essential that you consider the pros and cons of the agreement before making a final decision. Consult with your real estate agent for information about co-ownership and your local housing market.