Home Buying Tips

Buying a house with a friend or relative

Reading Time — 5 minutes

June 12, 2019

By Heidi Knight

Reading Time — 5 minutes

June 12, 2019

Going on vacation, running a marathon, starting a podcast are just a few things you can do with your friends. But what about buying a house with a friend? Many people are turning to this “hack” to make investing in a home more affordable.

The combination of competitive real estate markets and issues around affordability in major cities has resulted in the increasing popularity of friends, relatives and unmarried partners buying homes together. However, when two people who are not legally joined purchase property together, things can get a little murky.

Before diving into a joint deal, Here are a few points you should consider before jointly signing on the dotted line.

Think about who’s name(s) are on the mortgage

Financing a house is the toughest part of buying together. You’ll need to decide if one or both of you will apply for the mortgage.

Keep in mind that if you decide to apply together, both of you will need to show your credit history and sufficient income to be approved.

If one of you has had some financial setbacks, you may want to consider putting just one name on the loan instead.

That said, if only one person’s name is on the mortgage, he or she is the only one who’s legally responsible for the debt. In this case, it’s vital to discuss how you’ll split payments ahead of time to avoid conflict later on.

Consider a property ownership agreement

Even if you are in a wonderful relationship with the person you’re buying a house with today, there’s no telling what can happen in the future. That’s why it’s important to have a plan in place that will determine what should happen if conflicts come up.

Consider creating a property ownership agreement, which is a legally-binding document between the two of you. This allows you to settle these questions ahead of time.

Your agreement should include how you’ll split financial responsibility for the property, both for things like monthly costs such as the mortgage and insurance payments, as well as unforeseen maintenance costs.

You should also agree on what you will do if one person wants to buy the other individual out, especially if you contribute different amounts to the purchase.

Once you decide how these details should be handled, ask a lawyer to draft the agreement and have it notarized. If you can’t agree on what to put in the document, that might be an obvious sign you shouldn’t be buying a house together.

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Choose the right form of ownership

When you purchase a home, the deed will include both the names of the owners and the form of ownership you’ve chosen. This will determine how rights to the property will be handled legally, so you’ll want to be sure to choose the type that best fits your relationship.

You have a few options to choose from:

Tenancy in common: Tenancy in common is the most popular option for co-owners who are not married or plan to contribute different amounts of money.

In this case, each person is the legal owner of his or her particular share of the property. However, the percentage of ownership can be different for each individual. If one of the tenants passes away, their portion of the property goes to the beneficiaries, not the other owners.

Joint tenancy with right of survivorship: This type of ownership is common among long-time partners. It works similarly to a tenancy in common with one big difference. In case one of the parties passes away, his or her share passes to the surviving owner.

In this case, the part of the house owned by the diseased can’t be inherited by other beneficiaries. Here, if you sell the home, the profits will be split equally between the two owners.

Remember other homeownership costs

Buying a home together is about so much more than getting through the escrow and closing process. You’ll also be co-owners of the home and will be responsible for its day-to-day upkeep.

Sit down together, and talk frankly about how you’ll handle those details. Talk about how you’ll split up buying items like furniture for the home, who will be responsible for which ongoing chores, and how you’ll take care of any unforeseen expenses that may arise.

Final thoughts

Successfully buying a home together is all about having open and honest communication with your investment partner. Do your best to have these frank conversations ahead of time and bring up any concerns that you may have.

The bottom line is that you need to feel entirely comfortable before entering into a legal and financial agreement, even if it’s someone you’re involved with emotionally.

This article is not a substitute for advice from a licensed real estate agent regarding your particular situation. This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.

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