Buying a home is more affordable when you share the costs with friends and family

In today’s market, home prices are out of reach for many, but some are pooling their resources with a friend or family member to purchase a home they otherwise wouldn’t be able to afford. For young adults who can’t pay for a home on their own—or for family members who want to take advantage of the tax benefits associated with home ownership—co-buying is the best bet when it comes to buying a house.

"Neither of us had a big enough chunk of money to put down for a home in a desirable neighborhood," Brian Free told the U.S. News & World Report about his decision to purchase a home with his friend. "However, aggregating our resources allowed us to find a home that suited our needs."

As with any financial arrangement involving close friends or family, planning and careful consideration are needed. But with forethought and a little know-how, many of the common pitfalls can be avoided.

Choose how you will hold title

The decision on how to hold title determines who can sign documents and how the property is transferred in case of an owner’s passing. Co-buyers who aren’t married to each other may share a title as tenants in common (TIC) or as joint tenants with right of survivorship (JTWROS). Married co-owners may also take title via community property or tenancy by the entirety.

How do TIC and JTWROS ownerships differ?

When each co-owner has an equal interest (or share) in a home, a JTWROS applies, with one title held between all the co-owners. When a co-owner dies, his or her share goes to the other owners. Ultimately, the last surviving owner will own all the shares in the property.

The shares of tenants in common may be equal or unequal, and each co-owner has a separate legal title. In a TIC arrangement, there is no right of survivorship, so the home doesn’t go to the last surviving owner. Each co-owner can pass along his or her ownership via a will, meaning that the remaining tenants in common may find themselves sharing ownership of a home with someone they have never intended to.

Tenancy in common can be dissolved when one owner buys out another, the property is sold or one owner files a partition action to sell the home.

How are TIC and JTWORS ownerships similar?

In both tenancy in common and joint ownership situations, co-owners have equal rights of possession, meaning that each may occupy and use the property. If the home is rented, each co-owner is entitled to rental income from the entire property in proportion to the ownership share.

Before you buy, write a co-ownership agreement

Sharing the cost of buying a home can benefit all the parties involved, but it’s essential to determine ground rules before any money changes hands.

Co-ownership agreements are essentially the pre-nuptial agreements of home ownership: they lay out the relevant concerns of the parties involved. While it might be difficult to imagine problems when you’re excited to own a home with a friend or family member, these documents are important because they are the only way to resolve ownership issues aside from court proceedings. And when thousands of dollars are stake, it’s important to address the next three concerns.

What are the ownership percentages?

For joint tenants, this is easy: each co-owner has an equal share. Tenants in common may choose to divide the shares, perhaps based on the amounts contributed for the down payment.

How are ongoing expenses divided?

The division of recurring expenses such as mortgage payments, property taxes, insurance, utilities and maintenance costs should be spelled out in your co-ownership agreement. They may be divided to match the ownership percentages, or by the amount of time each co-owner will invest in improving or providing upkeep for the property. Consider setting up a joint checking account so that any co-buyer may draw from it in order to pay these bills.

What happens when one co-owner wants to sell?

When co-owners want to their interest in the house, they are not required to sell to someone approved by the remaining co-owners. However, a co-ownership agreement can grant the remaining co-owner the right of first refusal.

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