It may be a surprise but there are a lot of people these days who look to buy a house together. And I didn't mean a couple or just married people but also siblings, friends, parents and their child, cousins and more. The right terminology for this is a joint mortgage.
Before deciding to jump in with a joint mortgage you should be sure that you have taken into account every detail about it. Also, renting a house together is also a good way to save money.
It has its privileges like the possibility to pay a rent that either way you can afford to pay alone, but making this important decision can bind you financially with the other person.
Without the right preparation, this agreement can create an unexpected reverse in all relationships in the family. The most common mistake that most people make is that they think that the family bond they have will make the whole process easier.
The bitter truth is that it happens mainly the opposite. Family relationships can get in the way. With a plan made the right way it is possible to avoid the destruction of the family's bonds.
First of all, like every other thing, there are pros and cons in co-owning a property.
What are the pros?
It is easier to qualify for a loan. For qualification, the most important is the credit score at a two-year history of earnings for both wages and self-employed borrowers and the debt-to-income rate
If all tenants want to live together in the new home they can split all outlays like a loan, groceries, etc.
As long as you are ready to split the coast you can require mortgage interest on your taxes.
What are the cons?
If not all of the sides are ready to take their part in the outcomes and the loan it can produce serious issues.
If the person you co-own the property with decides not to pay his part of the mortgage there may be dangerous consequences for you too, even if you don't own the whole property and you still pay your part. How to handle different scenarios when you are a co-owner?
1. The exit strategy
You have to keep in mind that maybe not all members of the owners will want to extend this deal forever or decide to sell the property at the same time.
You can't make someone do something like that by force, otherwise, it may cause a bad effect on your cohabitation. Basically, the exit strategy is a list of questions the co-owners should start with when buying a shared property.
The benefit of that strategy is that the questions are made so they can clarify all the future crises that may happen. A few of them are:
Can a family member sell his part of the family property to a person outside of the family?
Under what conditions the home can be sold?
How many family members need to agree to a sale?
What procedure will be followed?
Will one family member have the right to stop the sale by buying out the other? There can be much more.
2. Allocate the expenses.
When distributing the parts of the loan you should know that is not required for the parts to be equal. That is determined by the incomes, previous loans, the responsibility to provide funds in the future, the allocation of usage benefits, the risk of loss from property deterioration or damage, and more factors.
Every member of the family has their role and their liability. The responsibilities should be aligned right so there wouldn't be someone who does not agree with the work he should do.
It's important to manage things right because if someone is making more than the others that can be a reason for problems that otherwise could be easily avoided.
4. The bills
For no one is pleased to ask their parents or their siblings for money even if we talk about co-owning. This problem in communication can be easily avoided by making an annual budget plan in advance.
5. Planing future conflicts and the right solutions for them.
The problem is only when both sides can't get to a compromise. Believe it or not, even the nicest people sometimes are assured that their problem is more important and stubbornly keep their position. In these cases, it is great if you have already made some rules to solve problems faster and easier.
6. Death case
When there is a possibility for this awful event to happen, a family fight can make it worse. In the best case, you can assume that where the left part goes can be controlled by the other family members.
A few questions may help if any conflicts begin:
Can the others buy out the heirs part and on what terms and for how long? Should the rights of an inheriting owner be different than the rights of the other co-owners? etc.
There are two different ways the division of property can go.
When all co-owners own an equal part the title is held between all of them. If a co-owner dies, their share goes to the other owners. In a tenant in common agreement, each co-owner can with a will hand over his share to whomever he wishes.
That means that the remaining renters might end up sharing the home with someone they don't know or don't want to live with. If you are not okay with that you should arrange a meeting with a lawyer. (See also our post on executors and how long executors have to sell the house.)
7. Property ownership
No matter if the property is bought or inherited, in both ways the title should be held. You have to know that changing the title is often very easy and with no bonus transfer taxes. Here you have two title options.
The title can be held by the family members and their names will be shown in the land registry or it can be held by a company.
The form of ownership is important and depending on what option you choose the issues can be different. For example:
If one of the owners dies what is going to happen to the rest of the co-owners. Are the family members protected from creditors? Are they protected from applications for the property that can impact them in a bad way? How is the property parted and what happens if a family doesn't perform its responsibilities? etc.
Can two families buy a house?
Absolutely. Keep in mind that many lenders want the co-owners to have equal parts and will require them to meet the minimum qualifying loan requirements. The loan depends on the lenders.
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