So you want to buy your first home, but buying a home on your own feels next to impossible. If you want out of the rent game but aren’t quite ready to tackle homeownership by yourself, co-ownership is a viable option.
Living your best financial life looks different for everyone. And, for some, it can look like sharing ownership of a home.
We can answer all your burning questions about co-ownership, including how it works and whether you should consider it as you’re deciding to buy your first home.
Bonus: We even have answers to questions you didn’t know you had. You’ll find everything you need in our comprehensive guide to co-ownership.
What Is Home Co-Ownership?
Home co-ownership (aka co-buying, joint ownership or shared ownership) is when two or more people buy a home and legally agree to share ownership. FYI: This owning arrangement applies to most types of homes, not just single-family homes.
Deciding to buy a home with other people is about more than coordinating open house visits or locking in on home must-haves, it’s a serious investment.
You’re entering into a legal relationship and agreement with other people. That’s why one of the first things everyone should agree on is to consult a property lawyer. A property lawyer will know what you’ll need to do for your situation and what to include in your co-ownership agreement.
Homeownership comes with conditions and contingencies. We’ll give you a rundown of some of those key considerations to help you be better informed before you decide to co-own.
What’s a co-ownership agreement – and what’s in it?
A co-ownership agreement details each owner’s ownership rights. It’s a legal document that outlines the rules, the relationship and the expectations between all owners for the entire property.
Not all co-ownership agreements look alike. Your agreement will include what’s important to you, and it will reflect the expectations of the other owners. This is where a property lawyer will come in handy, making sure everyone’s concerns and interests are in writing. But there are standard issues that get addressed in co-ownership agreements, and we’ve drafted a list.
- Each individual’s share of property ownership
- The down payment, fees, property taxes and mortgage payments (including how to split them)
- Contingencies if any owners don’t or can’t pay their share
- House maintenance and house rules and responsibilities
- Contingencies in case an owner decides to move out or sell their share of the home
- How to split the money when the home is sold
- What happens to a deceased owner’s share
- Whether the owner is an occupant buyer (they co-own and live in the home) or a non-occupant buyer (they co-own but don’t live in the home)
Pros and Cons of Co-Ownership
There are pros and cons to co-ownership. We’ve outlined a handful on each side to get the ball rolling.
- Splitting fees and payments between joint tenants (aka co-owners) can make buying a house more affordable.
- It’s a great way to diversify your investments, build your credit and start building home equity.
- With the money you’ve saved co-owing, you’ll have a larger budget to use on other priorities.
- It may lower your utilities and other household expenses because you’re splitting them with your joint tenant(s).
- Co-owning could get you out of the renting game sooner than saving on your own to buy a house.
- In most cases, if you want to sell or rent your share of the home, you don’t have to get approval from the other tenant(s). (Spoiler alert: You’ll see this in the “cons section,” too.)
- There are financial risks for all parties if anyone can’t make their monthly payments. The other owners may have to make up for the missing share.
- Lenders will set your mortgage interest rate based on the owner with the lowest credit score.
- Co-ownership may cause tension, especially if an owner isn’t being fully transparent with the other owners.
- You may not be able to buy the home you want because of zoning rules and shared housing restrictions — this may make it a little harder to house hunt.
- In most cases, an owner can sell their share or rent it out without needing the approval of the other tenants. Depending on the home’s title (think: the legal right to a property), it may mean that you don’t get a say in who purchases the share or lives in the home.
How To Buy a Home With Multiple Owners: Types of Titles
There are a few types of titles that allow you to own a home with multiple owners. Each type comes with its own set of rules and stipulations. Let’s take a look at them, shall we?
Tenancy in common (TIC)
What: This title offers lots of flexibility and is used when buying a home with multiple owners.
Who: It’s available to anyone, including married couples and family members.
- You don’t have to divide shares equally between owners. You get to decide how the percentages are split.
- Everyone has equal access and use of the property even if the shares aren’t split equally.
- You name who you want to inherit your share when you die.
How you can pay for the home: Normally, all owners apply and qualify for the mortgage together. With a TIC, mortgage payments are usually split based on the size of the share you own, but you can negotiate with your co-owners.
Some TIC scenarios:
- Friends and family: You and your close friend(s) or sibling(s) want to buy a home together. You’ll finally get to hang that “live, laugh, love” wall art you got 3 years ago!
- Parental support: Your parents want to help you buy your first home, so you all become co-owners. Pro tip: Make sure they’re non-occupant buyers unless you want them to live with you, too! 😅
- Investor support: Investing isn’t just for stock markets. You can look for an investor to co-buy a home with you.
- Joint tenants or fractional ownership: You travel a lot for work to a specific city, but you’ve grown tired of Airbnb’ing it, so you co-buy with locals or other frequent travelers to have a place in town to call your own. You get all the perks of a home, but you share it with your joint tenants.
This is also known as joint tenancy with rights of survivorship (JTWROS).
What: This title is better suited to co-ownership situations with two to three buyers. You typically see it used when the co-owner is a spouse or a relative, although that’s not exclusive. JTWROS automatically transfers the deceased owner’s shares to the surviving owner(s).
Who: Available to anyone, including married couples and family members.
- All owners get equal shares no matter how much an owner has invested.
- Owners must acquire the title at the same time and on the same deed.
- JTWROS includes rights of survivorship. When an owner dies, their share gets divided among the surviving owners even if the deceased has named an heir or beneficiary in their will.
How you can pay for the home: Normally, all co-owners apply for the mortgage. Since everyone has equal shares, your mortgage payments are usually negotiated based on what works best for each owner. For example, if you make more money, you may agree to pay more than your joint tenant(s).
Some JTWROS scenarios:
- A married couple: You and your spouse want to buy your first home together and have equal shares, but you don’t want to be considered a single financial entity on the title. With a JTWROS, each spouse is their own financial entity. In this scenario, you don’t have to invest the same amount, but you’ll get equal shares.
- Friends who are like family: Family is what you make it. Who would dare tell you that your besties aren’t your family? With a JTWROS, your share of the home will automatically transfer to them when you die.
- Domestic partners: You and your partner aren’t legally married, but you’re committed to spending the rest of your lives together like any married couple. A JTWROS ownership arrangement gives both partners equal ownership rights and automatically transfers the share of the deceased partner to the surviving partner.
Tenancy by the entirety
What: This title is suited for co-ownership situations with two buyers, providing equal shares that must be obtained at the same time, on the same deed and includes rights of survivorship.
Who: Only available to married couples.
- With tenancy by the entirety, a married couple is considered a single financial entity. In essence, the property is owned by one person. It differs from a married couple with a joint tenancy title because here, couples are one financial entity (person) but with a JTWROS each spouse is seen as their own financial entity.
- In some states, married couples can also get a community property title, but it’s not as common. A community property title is similar to a tenancy by the entirety, but survivorship rights aren’t guaranteed.
How you can pay for the home: You and your spouse apply for a mortgage as a single financial entity. You make one monthly mortgage payment instead of each of you paying your own portion each month. The only decisions you’d have to make with your spouse are which bank account you’ll withdraw the mortgage payment from and how to split (or not split) the payments.
Some tenancy by entirety scenarios:
- Alex 💍 Cameron: Alex and Cameron buy a home together. They own equal shares and make monthly mortgage payments. The mortgage payment comes out of their joint checking account.
- Brooklyn 💍 Riley: Brooklyn and Riley buy a home together. They own equal shares and make monthly mortgage payments. The mortgage payment comes out of Riley’s checking account. Every month, Brooklyn transfers their half of the mortgage to Riley’s savings account.
- Jordan 💍 Sam: Jordan and Sam buy a home together. They own equal shares and make monthly mortgage payments. The mortgage payment comes out of Jordan’s checking account. Morgan doesn’t contribute to the mortgage but pays for all other monthly home expenses.
Tips for Success
Home co-ownership can be tricky, but it can also be rewarding! Take a gander at our tips to help you successfully pursue this ownership arrangement.
Get it in writing
Co-homeownership success will hinge on getting everything you want and need in writing. Have a property lawyer type up everyone’s mutually agreed expectations and responsibilities in the co-ownership agreement.
Know your rights
Know what rights come with the title you get. Understand everyone’s rights to access and property use.
Be financially transparent
Get really familiar with your finances and your financial goals. Make sure that co-owning would be mutually (and monetarily) beneficial.
You’re not the only one who should be spending some quality time with their finances and financial goals. Make sure your prospective co-owner(s) are doing the same thing. The more you all know about each other’s financial situations, the better prepared you’ll be to deal with any unforeseen or foreseen financial setbacks. The more you know, the likelier you are to keep your relationships intact.
Set money aside
Create an emergency fund to cover unexpected expenses, repairs, job loss or even missing payments from a co-owner(s). Whether the emergency fund is a joint tenant collaboration or one tenant takes up the initiative, it’s in everyone’s best interest to have cash set aside.
Know the local housing laws
Every neighborhood comes with zoning restrictions, building codes and municipal laws that govern the kinds of homes that can exist in a neighborhood and how they can be occupied. Have a property lawyer confirm that the home you’re interested in can be co-owned.
How Do You Sell Co-Owned Real Estate?
Typically, an owner can sell their share without getting the approval of the other co-owner(s). But there are special conditions that come with joint tenancy and tenancy by the entirety.
- Joint tenancy: An owner can sell their share without getting the approval of the other owners. Whoever buys the share will come into the arrangement as a tenant in common and won’t have the same tenancy rights as the remaining co-owner(s).
- Tenancy by the entirety: Both spouses must agree to sell. A spouse can’t sell their share if the other spouse doesn’t allow them to. In the event of a divorce or death, the original tenancy agreement no longer applies. The spouse who wants to sell doesn’t have to get permission.
No matter which type of title you get, if you want to sell the home, everyone has to agree.
Is Home Co-Ownership Right for You?
So, are you still interested in this kind of ownership arrangement? Co-homeownership has its perks, and you’ll get even more benefit out of it if you take steps early on to reduce the chance of financial and relationship stress.
Talk things through and get everything in writing with your property lawyer. Find prospective co-owners who are on board with being transparent about their finances.
Decide which mortgage is best for your co-buying situation with the help of your lender or mortgage broker.
Remember, living your best financial life looks different for everyone. And, for you, it might look like sharing ownership of a home. 😊