How risky is co-buying a home?

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Living with, let alone buying a house with, an unmarried partner or friend was almost unheard of a generation ago. But now, co-purchasing is not just starting to normalize. The number of co-buyers with different last names has increased by 771% since 2014, demonstrating that this unconventional way of buying a property is increasingly common.

Buying a home with a friend or partner can make a lot of sense in many situations, but it also comes with some special considerations that need to be taken into account before signing on the dotted line. Understanding the benefits and risks ahead of time can help ensure the deal doesn’t go wrong.

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An attractive new way to buy a home

There are many reasons why co-buying is becoming an increasingly popular way to buy a home. Having two mortgage holders can help meet the criteria for taking out a loan that a single buyer may not meet and requires both parties to bring less to the table upfront. Perhaps the couple have not yet formally married, but intend to do so in the future and want to build capital beforehand.

Given the current real estate market, which is appreciating at record speed, co-buying could be an attractive way to enter the housing market despite rising prices and avoid having to continue renting. Rents have risen by as much as 25% in some metropolitan markets this year, making buying a home at insanely low mortgage rates all the more appealing.

Co-purchasing is not without risks

There are a lot of advantages to this method of buying a property, especially in today’s market. But co-purchasing is not without significant risks which must be carefully weighed before purchasing.

Co-buying could mean you get less favorable terms, as there is a co-signer who may not have a history of credit or other underwriting factors as strong as you would individually. Debt-to-income ratios can also be skewed because the mortgage is shared between the two parties.

The advantages of co-purchasing include:

  • More affordable entry point for each party’s down payment.
  • Easier to qualify with multiple incomes, especially if one of you is on a 1099 or self-employed.
  • Lower monthly payments when splitting the mortgage instead of taking it all on your own.
  • All buyers can potentially save money on monthly expenses like utilities and minimize unforeseen costs like repairs.
  • Allows co-buyers to build equity rather than just paying rent and leaving the occupancy with cash rather than lint in your pockets when it’s time to sell.
  • Tax deductions for mortgage interest can be distributed among the co-owners according to the agreed percentage.

The risks of co-purchasing include:

  • Interest rates are determined by whoever has the lowest credit score, which could mean paying more than buying on your own.
  • Affects your debt-to-income ratio, since you are technically responsible for the entire mortgage payment, which can hamper approval of other loans, such as a car.
  • Both parties are tied to the same mortgage, so if one cannot or does not make the payments. both people are held accountable regardless of whether you make timely payments.
  • Repairs or improvements will have to be mutually agreed upon, which can be difficult if a person does not have the funds or the motivation to do so.
  • Separating takes longer than breaking a rental lease and will involve either selling or refinancing the house.

How to prepare for success

You should go into this purchase with a realistic perspective that you will most likely take different paths at some point in the future. Make sure every aspect of the deal is written down so that both of you know what you’re looking for and what to do with any complications. Ideally, this would be done by entering into a legally binding contract with the help of a lawyer so that you are protected if things go wrong.

Make sure it is clear who pays how much for each homeownership bill, what to do if one of you becomes unable to pay for a period of time, and what to do if one of you wants to leave. Plus, do your own checks on each other before you even begin this process by checking credit scores, income, and other financials.

Co-buying a home can be a great way out of the rental market sooner than you might have otherwise so you can start building equity and not be at the mercy of increases. of rent. But there are quite a few risks involved in partnering with someone. Make sure you check all your basics before you buy, create a solid agreement between all parties, and have a back-up plan just in case a disagreement or unexpected situation arises will keep both co-buyers safe.


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