What is Home Co-ownership? Types of Joint Ownership Explained


November 6, 2022

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You’ve heard the advice countless times— invest in real estate. But it’s hard for anyone to buy a house right now. How are you ever going to swing the purchase of an investment property? There’s a way to split the costs and risks with home co-ownership.

In this article, we’ll break down:

  • The definition of co-ownership of a house
  • How co-ownership works
  • Types of co-ownership
  • Whether co-ownership is right for you
  • Your next steps for co-ownership

Co-ownership defined

Co-ownership of property means that multiple people own a portion of real estate. There are different types of co-ownership: tenancy in common, joining ownership, community property, and tenancy by the entirety. 

How does home co-ownership work?

As the name implies, co-ownership means that all involved people own a portion of a house. You go into the real estate transaction together. Ultimately, everyone’s name is on the deed and mortgage. All parties are responsible for the house and making mortgage payments. 

Examples of co-ownership 

There are a lot of real-world reasons to co-own property with others. Here are some common instances: 

  • Dividing the ownership between a group of friends so you can start your own short-term rental side hustle
  • Co-owning your first house with a family member to gain access to the market
  • Keeping your finances separate from your partner’s but still wanting to own a house together
  • Buying a house with your elderly parents in place of paying for elder care

Pros and cons of co-owning a home

No financial situation is a fit for everyone. Weigh the advantages and disadvantages of home co-ownership to determine if it is right for you.

Pros of real estate co ownership

There’s much to gain from walking down the path of home co-ownership. Here are a few of the significant advantages:

  • More affordable to own a house because you can split the mortgage and down payment between the group
  • Banks view you as a lower risk because you’re bringing a larger total income to offset your debt as a group.
  • Household expenses are minimized. 
  • Safer to formalize your joint ventures with friends and family members
  • Building equity earlier in life is essential for building wealth.

Cons of real estate co ownership

Though there are a lot of benefits to home co-ownership, there are some downsides. Consider these disadvantages while you weigh the risks:

  • When applying for loans, the bank uses the buyer with the lowest credit score and worst financial track record to determine rates. So you’re only as good as your weakest link when applying for a mortgage.
  • You may have to make additional payments if a co-owner foregoes mortgage payments. If you don’t, this affects your credit score and could lead to the house going into foreclosure. 
  • It’s difficult to walk away from an unsavory co-ownership relationship because someone has to buy out their share of the house, and then the group must refinance the mortgage. Often, a single person or smaller group cannot qualify for the mortgage without the added income of the group.
  • In the event of a death of a co-owner, there can be complicated legal ramifications depending on how you structure the co-ownership.

The key is understanding who you are going into business with when you go down the path of co-ownership. Make sure to pick people you trust, have a sound financial situation, and create an agreement that can weather unforeseen storms. 

What are the forms of co-ownership of real estate?

There are several options for co-ownership of property. We’ll walk you through the different types of real estate co-ownership so you can find the right type for your situation.

Tenancy in common

Don’t be fooled. Tenancy in common has little to do with renting. It’s a type of shared ownership where an individual owns a percentage of a property. There can be as many owners as the group wants, and each owner can have a different stake in the co-ownership arrangement.

It’s important to note that even though owners can own different percentages of a property, their legal rights are equal (unless otherwise stipulated in a contract). All owners have equal access to the property for use or benefit. 

Tenancy in common is also unique when it comes to inheritance. Instead of the co-owners taking over ownership, the stake in property ownership typically goes to an heir or person designated in a will.

Joint ownership

Less commonly known as joint tenancy with right of survivorship (JTWROS), joint ownership means that owners own equal stakes in a property. It doesn’t matter if one party paid more. 

You see joint ownership commonly in marriages. It allows two people to own a property equally, and there is no legal confusion with death. In the event of a death, the existing owners take over the deceased party’s share of ownership.

Community property

Community property is available in some states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington). With community property, couples are seen as a single financial entity. You must specify who inherits property in the event of a death, which makes it different from joint ownership. 

Tenancy by the entirety

Similar to community property, tenancy by the entirety is when a couple owns a property as one unit. The difference is when a member of the couple passes away, the other person automatically takes ownership of the property.

Community property and tenancy by the entirety are common ways to co-own a house for couples. 

What is the difference between joint ownership and co-ownership?

The two most common ways to pursue co-ownership if you’re not married are through tenancy in common (TIC) and joint ownership. 

TIC is the more popular of the two. People like being able to own their unique stake in the property. For example, if you’re responsible for 60% of the mortgage, you own 60% of the property. This is different from joint ownership, where owners automatically own equal shares despite paying different amounts. 

Another key difference is the ownership stays in your family. So if you were to die, your share of the property goes to an heir. This is different from joint ownership, which allows the co-owners to absorb your share. 

Are co-ownership homes a good investment?

It depends. Co-owned homes allow people to invest in real estate with reduced risk. You’re able to invest in areas that may have otherwise been unattainable. As the price of housing trends upward, it only makes sense to invest as early as possible. Co-ownership makes real estate more accessible.

But co-owning a house is a business relationship. You are probably entering this business relationship with friends or family members. Consider a few questions before you do this:

  • Are my fellow co-owners able to afford monthly payments?
  • Do we agree on how we should use the property?
  • Is everyone able to put down our agreement in writing?
  • Do I trust the people I am going into business with?
  • Is there a way to leave the arrangement if it’s not working for someone?

What type of loan is best for co-ownership?

Qualifying for a mortgage with a co-ownership is similar to a traditional loan. Most banks will recommend that you use a conventional loan. Special programs like VA and FHA loans are harder to qualify as a group.

Each member of the potential co-ownership goes through the loan process for their percentage of the loan. This has some advantages and disadvantages. The primary benefit during the loan process is that you will most likely qualify for a larger loan as a group. The downside is that the person with the worst credit score, income, and debt-to-income ratio often decides the mortgage rate for the group. Consider all group members’ financial situation before entering a co-ownership relationship. 

Ownership agreement for co-owners

An ownership agreement for a co-owner is a legal document for two or more people who co-own a house or property. The agreement outlines the terms and conditions of the investment relationship. There are a few necessities for an ownership agreement:

  • What happens if an owner dies?
  • What should you do with earnings from renting or selling the property? How much does each party receive?
  • How do you sell a share of the property?

Consult a real estate attorney for additional stipulations in your co-ownership agreement. The best way to form a healthy financial partnership is to get a deal hammered out that all parties agree to and understand. 

Why is co-ownership on the rise?

As of late 2021, home prices in the U.S. are up by 18.05%. Many prospective homebuyers, especially millennials, feel priced out of the market. Many have turned toward co-ownership as a strategy to deal with rising costs. Co-ownership is one path toward the American dream of home ownership. Fractional real estate investing is a great way to bypass the capital barriers required to own property.

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