Not every new home buyer has a cookie-cutter nuclear family. What about buyers who aren’t married to their partners or those with a close chosen family? If you love hanging out with certain friends or have a great relationship with your current roommate, buying a home together could be a great financial step for everyone. Additionally, it’s not uncommon for family members or close friends to purchase a home together as an investment property or a vacation home. If this is your situation, there are a few serious considerations to ponder before taking the leap. This article will explore what you need to know about buying a home with others in Northern Colorado.
Choose Your Co-owner(s) Carefully
This step may seem obvious. However, many people rush into this decision without carefully considering every angle. Beyond friendship and roommate compatibility, it’s essential to make sure your co-owner (s) meets the following requirements when buying a home with others in Northern Colorado:
- Is financially sound
- Has a good credit history for mortgage requirements
- Has no outstanding liens
- Has life insurance
- Is overall trustworthy and financially responsible
Create an Ownership Agreement
Think of an ownership agreement like a pre-nuptial agreement but for homeownership. You may get along great with your co-owner and trust them completely. However, it’s important to get everything in writing. It’s worth the upfront expense to hire an excellent attorney to write a detailed agreement. An added benefit of hiring a professional is they can go over the pros and cons of each party’s particular situation and finances with an objective eye.
The very act of drafting an ownership agreement is beneficial in many ways. It will help you ensure everyone is on the same page about the specifics of homeownership. These details include ongoing expenses like utilities, mortgages, property taxes, and homeowners insurance. How will these expenses be divided and paid for? What is your plan if one owner wishes to sell or rent out their share? Who gets the tax deduction? Putting all these considerations into writing will help everyone decide if they are committed to the sale.
What Type of Title Should You Get?
First and foremost, the co-owners need to agree on how the property’s title will be held:
- Tenants in Common (TIC) – Most friends or unrelated owners choose this type of ownership so that each co-owner has a separate legal title. The shares in a TIC can be equal or unequal percentages depending on how much someone will be contributing toward the home. There is no right of survivorship— each co-owner can pass their share via the will to others outside the ownership agreement. However, the co-owners can arrange the “right of first refusal” so that the remaining owners can decide if they want to buy out the other owner or their heirs if that’s the case.
- Joint Tenants with Right of Survivorship (JTWROS) – Most married couples have this form of joint ownership. Under this title, the survivor automatically becomes the sole owner if one spouse dies. Some family members or unmarried couples buying together also may choose this type of arrangement and share one title between the co-owners so that the home stays in the family.
- Limited Liability Company (LLC) – Some co-owners decide to create an LLC or a trust to hold the property’s title. This makes moving owners on and off the title easier.
Create a Cohabitation Agreement
A cohabitation agreement is different from your co-ownership agreement. Rather than outline the financial responsibilities of each party, this agreement deals with things that come up in the day-to-day. This document should include such details as:
- Home maintenance responsibilities
- Who buys furniture and appliances
- Who gets access to the home and when (especially important for vacation homes)
- Rules for pets and smoking
- Rules for visitors and long-term guests
You’ve probably already lived with roommates at some point in your life, so you know what daily habits can make or break harmony in a living situation. Anticipate what can come up and discuss with your co-owner(s) to set up some ground rules. Since you’ll own a home with them, it won’t be easy to walk away if one party is unhappy.
Create an Exit Plan
You know what they say. We make plans, and the Universe laughs. You never know what life will throw at you, so it’s crucial to have an exit plan. You or your co-owner might end up getting married, transferring to a job in a new city, or having an unexpected change in finances. We’ve already discussed how different types of joint ownership can affect how one owner transfers shares to another. This is where the “right of refusal” comes into play. You also must consider how you will agree on a sales price. If one owner wishes to leave, it can get pretty complicated. Make sure to include a detailed exit plan in your ownership agreement. Together with your attorney, all co-owners should be able to come up with a fair and agreeable plan so you can begin and end on good terms.
Buying a home with others in Northern Colorado can be a wonderful experience. Just remember to plan carefully and don’t skip any steps. If you are considering this course, give me a call. I’d love to help you with every aspect of the home-buying process!
I'm Lauren Haug! I'm a teacher-turned-real estate agent, and I teach people how to build wealth through real estate in Northern Colorado.
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