You are not alone if you're considering purchasing a home with someone you are not married to. According to recent research, one in three Americans have bought a home without their spouse, and the majority of people would consider doing the same when purchasing a home with a friend, family member, or loved one.
A wider shift in how people view marriage may be the cause of some of these developments. The U.S. marriage rate dropped from 9.8 per 1,000 people in 1990 to 5.1 per 1,000 people in 2020. The changing financial landscape of homeownership is another factor. According to the National Association of Realtors®, buying a home has increased in price by 55% from last year.
And while there are numerous reasons why you should think about buying a house with a buddy, there are also several reasons why you should give mortgage sharing some thought.
1. First, put everything in writing
Seeing eye to eye with friends and family on the relative merits of Lady Gaga, pickleball, and gas versus charcoal barbecues can be a great foundation on which to build a relationship, but sharing the same tastes and interests does not mean you will share the same approach to finances.
To protect your bottom line—and your relationship—cover every aspect of any real estate agreement, from purchase to sale, in writing with your co-signer before even bidding on a house. The process of creating an agreement will likely teach you a lot you didn’t know about your friend.
Have a lawyer review the entirety of your written agreement for anything you might have overlooked to ensure it is legally binding.
2. Establish and adhere to a budget
You should set a budget and a limit amount that you agree to never go over before you start looking for a home seriously.
The budget should outline not only how much house you can afford, but also how you plan to handle the extra costs associated with buying a house, such as closing costs, taxes, lawyer fees, utilities, upkeep, and more. To prevent future disputes brought on by anticipated or even unforeseen costs, the allocation of these costs should ideally be documented in writing.
3. Determine the titling of the property
Theresa Raymond, a realtor with Smoky Mountain Realty in Tennessee, explains that there are two different kinds of co-ownership when you buy and live in a house with someone. Tenancy in common enables you to divide the property's ownership along the lines that make the most sense. One partner may own 70% of the property and the other party may own 30% if they pay the majority of the down payment.
However, under this type of arrangement, the share of a deceased person does not automatically pass to the surviving co-owner. According to Raymond, it will instead become a part of their estate.
Raymond claims that joint tenancy with rights of survivorship is easier. If the ownership of the property is going to be divided equally, this usually occurs. The surviving party receives the deceased party's share after they pass away.
4. Death and Exit plans
Although it can be difficult to think of a relationship ending before it even begins, it is advisable to bring up the matter before buying a house with a friend.
Honest discussions and precisely written agreements that specify who pays for what when, what happens if one person's financial condition changes, and, in the worst-case scenario, who will inherit the property in the event of one person's death, can prevent the majority of issues.
These are not enjoyable discussions. However, they are crucial if you want the reality to match your shared ambition of home ownership.
If you plan to buy a home this year, get in touch with a real estate expert. Click here and I'll be happy to help you.