Buying a home on your own is hard. But what if you’re not married or in a long-term partnership and still want to split the cost with another person or people? It’s totally possible, and actually a great idea if you want to start building equity now! It’s called a joint mortgage, and you can buy a house with siblings, parents, extended family, and even friends. If you’ve discussed it thoroughly with the other party and are sure it’s something you’re willing to take on the responsibility and partnership of, this is an excellent way to build generational wealth without having to spend years renting and saving first.
In this article, we’ll explain more about what a joint mortgage is, how it works, and how you can get funding for one with your co-borrower!
How co-ownership can work
There are two different options when it comes to co-buying a home:
Tenancy in common.
Tenancy in common is when you get a joint mortgage with a co-borrower but you invest different amounts, resulting in an uneven share of ownership and equity. In effect, the homeownership will be allocated in percentages based on how much each individual invested in the property.
All borrowers have equal right to use the property. But, all must agree if it comes time to sell the home. When the home is sold, proceeds will be divided amongst the co-borrowers based on the aforementioned percentages.
Additionally, co-owners may sell their share of the property, but must get permission from the other owners to do so. One may also designate a beneficiary of their share.
Joint tenancy is when all co-borrows invest equally into the property. This also differs from the tenancy in common because you can sell your share without permission from other co-owners. However, you may not designate a beneficiary – instead, your share would get divided up amongst the other investors.
What are the benefits of co-buying a home?
Co-buying a home and co-borrowing on a joint mortgage can provide a number of benefits. It’s why we’re seeing an increase in these types of purchases in the last few years. Here’s why:
- You can stop wasting money on rent. So many people are stuck in the cycle of renting because they aren’t able to come up with the cash necessary to buy a home. A down payment, closing costs, and associated fees really add up, so it’s difficult for one person to shoulder. Because of this, single people may opt to rent during their prime wealth-building years. Co-buying with a trusted relative or friend offers a solution to this by allowing you to split these costs and begin building equity right away.
- Begin building wealth sooner rather than later. According to a study conducted by the National Association of Realtors, homeownership leads to significant wealth gains over time and is one of the number one ways that families build generational wealth. The median wealth of homeowners is 89 times higher than that of renters. That’s HUGE!
- You are much more likely to qualify for a loan. Qualifying for a mortgage as a single person on a single income is going to be extremely challenging. Lenders look at things like your income, debt-to-income ratio, credit score, etc.. Obviously, the higher your income and value of your assets, the more likely you are to qualify and the more you qualify for. Double or even triple income is going to be much more appealing than a single income. Just make sure your co-borrower doesn’t have a really low credit score or a lot of debt stacked up, because this could hurt you!
- Ability to split maintenance costs. Any homeowner knows that the cost of buying a home is only the start. There are a lot of maintenance costs associated with the upkeep of a property. But when you co-own a home, all of these extra monthly costs are split as well.
Co-buying a home is a great way to start building equity in partnership with someone you’re close to. It’s mutually beneficial and a great entry point into home ownership. If you have any more questions about co-buying a home, let us know. We’d be happy to help!