Co-Owning a House: Types of Ownership and Key Things to Know
Co-owning a house can be a great way to access homeownership sooner than you might be able to if you were to try and go solo. It is not without difficulties and specific nuances that need to be addressed, and it’s important that you are clear on the type of property co-ownership that you are entering into.
Types of Property Co-Ownership
Being a co-owner of a property is exactly as it sounds, it is a type of real estate ownership that means that you are the owner of a property in cooperation with other owners. This is, of course, different from the typical method of home ownership where an individual or couple owns the property. There are a number of different ways that you can be co-owners of a property, and it is important to define which of these is right for you before entering into home co-ownership.
Tenancy in common
Tenancy in common is a form of co-ownership that involves two or more parties. That number can be as high as you like, and the ownership is proportionally linked to the amount invested. That means that you can be co-owners with an unequal vested interest in the property. You could, for instance, have one person with a 60% share of the property, another with a 20% share, and then two more people with 10% each. The proportion of ownership relates to any financial gain, liability, and, potentially, decision-making power.
It’s worth noting that tenancy in common is not an investment that you can pass on to someone after death. Instead, shares are equally distributed amongst the remaining tenants. So no beneficiary from your will will see anything related to the tenancy in common.
Joint ownership or the harder to remember, joint tenancy with rights of survivorship, is a form of co-ownership that affords all tenants the same ownership rights. This is typically found in marriages and setups where a couple has purchased a home together. Even if one of the co-owners has invested a higher financial sum the ownership rights remain equal.
Each tenant will have been granted deeds at the beginning of the ownership process and should they die, those deeds get passed on to the surviving party (hence the rights of survivorship).
In order to have a joint ownership agreement there are 4 stipulations that must be met; Time, Interest, Title, and Possession. In short, time defines that the ownership starts at the same time for everyone. Interest defines that everyone has an equal ownership interest. Title defines that everyone receives the same title deed. Possession defines that each tenant is able to use and access the property in the same way for the same amount of time.
Co-Own as Community Property
Less frequently, in fact only available in 9 states, a married couple can co-own a property as community property. In the 9 states, a married couple isn’t seen as two individuals, instead, they are seen as one financial item. If one-half of the couple dies, there is no automatic right of survivorship, the two halves must stipulate that they want their share to pass to the other party upon death.
Tenancy By The Entirety
Married couples in the U.S. may also opt to co-own a house with a tenancy by the entirety. This model is very similar to others but comes with automatic rights of survivorship for the widowed partner. Should one partner die, their shares automatically pass to the survivor without question. In the same way as community property, both owners are seen as one entity financially speaking.
Financing Options for Co-Owning a House
When financing a home as co-owners almost all situations will involve some sort of mortgage, unless you are purchasing a home with cash funds in its entirety. For the most part, however, people aren’t in a position to purchase entirely in cash and so mortgages are required.
Co-owners with a joint mortgage are known as being joint and severally liable. This is a legal term that means everyone is equally responsible for the mortgage. Should one person die, disappear or be unable to pay, the other person is liable for the mortgage still. This overrules any verbal or written agreement between the two parties, but it doesn’t mean that those discussions shouldn’t take place.
How you split the finances depends entirely on your relationship. You may choose to split the cost 50/50 regardless of financial status, but many relationships tend to work out a solution where everyone is on an equal footing. This might mean mortgage payments are shared in proportion to salary earnt, or that someone is able to foot the downpayment using savings then the other pays more of the monthly repayments.
Pros and Cons of Co-Owning a House
There are a variety of pros and cons to co-owning a house, the list is entirely variable depending on your own situation and who you’re planning on co-owning a house with. That said, these are fairly commonplace pros and cons.
Pros of Co-Owning a House
- Your payments will be cheaper individually, the total will remain the same.
- Mortgage applications are considerably easier with the increased buying power.
- You’re able to join the property ladder sooner than waiting for your own savings to accrue.
- Once in the property, if everyone is residing within it, bills and maintenance are shared. Making lower costs for everyone involved.
Cons of Co-Owning a House
- Everyone on the mortgage is jointly and severally liable, so if something happens to one co-owner the others have to pay the full amount.
- Loan availability and interest rates are calculated based on the lowest credit score in the group.
- If one co-owner wants to sell but the others do not, this can complicate matters.
- Depending on the tenancy, death can cause major issues if not addressed.
Co-owning a property is incredibly commonplace and often sounds more complicated than it actually is. Consider all of the couples and marriages that co-own property together. The important element is that everyone is aware of the nature of the agreement and what happens should there be a major change in circumstances.
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