Buying a house with your partner or friends can be a complex process if you don’t agree on certain things from the onset.
All the parties involved should communicate properly – about finances, expectations and have a contingency plan if ever things go south and people decide to go their separate ways.
Here are factors you should consider when buying a house with your unmarried partner, friends or family.
1. Talk About Finances
It is not easy to have a conversation about money. But it is a necessary conversation, especially if you plan on making this investment of buying a house with someone else.
All the parties involved will have to be open about their monthly spending habits, debt, credit scores and how much everyone is willing to contribute to financing the project.
Have a conversation about money before you start house hunting. This will help you to know what exactly to look for within your budget.
2. Decide on How Costs Will Be Split
You all should agree on how to split costs while keeping in mind people’s financial capacity. One way of doing this is by opening a savings joint bank account to make monthly contributions towards buying the house.
The other way to do this is to come up with a budget of all the expenses you will incur then allocate each payment to a specific person. This way, everyone is aware of their responsibilities and will take accountability for their actions.
There is no standard way of dividing up expenses. You all have to agree on who does what; who will pay for maintenance fees, lawyer fees, taxes, insurance and much more. Not forgetting the hidden costs when buying a house.
For instance, if someone earns more than the other, they can pay the more expensive bills. But remember, no one wants to feel burdened in the process. Those who will contribute less can find a way to provide non-monetary value.
3. Whose Name is on the Mortgage
Before you settle on the mortgage lender, you need to decide who’s name will appear on the mortgage. The person with a high credit score and great financial history should consider applying for a mortgage to get good interest rates.
Find out if the lender will allow you to make a joint application. This can improve your chances of getting the loan since you will be coming in with two income sources.
If you apply for the loan alone, remember that all the financial burden will be on you regardless of what the other parties promise to contribute. It can get quite stressful if they don’t keep their word by making the payment.
4. Whose Name Will Appear on the Title
The title deed shows ownership of the property together with its location. There are different ways in which ownership can be established when buying property with someone else.
- Sole proprietorship (ownership): A person can decide to own the property alone.
- Joint ownership: You and your partner have equal shared ownership of the property with the right of survivorship. If one partner passes away, the other partner gets automatic ownership of the property.
- Tenancy in common: All parties have an equal undivided share in the property, meaning that everyone has equal rights to the property. Unlike joint ownership, there is no right to survivorship. If a partner dies, the beneficiary gets their shares. This type of ownership works if you are investing as a family.
If you are not sure about which one to settle on, make sure you get a property lawyer to help you make the right decision.
5. What Happens if You Part Ways
In the unfortunate event that you break up or get into a disagreement with the person(s) you are buying property with, the ownership goes how it was set up as mentioned above.
For instance, if your name is the only one on the title deed, the other person doesn’t have legal rights over the property. If you are tenants in common, any party can decide to sell the property without getting consent from the other person.
More and more people are getting into property ownership with their partners, friends or families. To avoid disagreements, be open and honest about your financial situation, communicate freely, get help from the right professionals in real estate and have a contingency plan in place if anything ever goes wrong.