Traditionally, buying a home either consists of one person buying a home in his or her name or a married or committed couple buying a home as a family venture. Those trends have not and will not go by the way-side, but there’s a ‘new kid on the block’ in terms of home ownership and it has to do with buying a home with a relative or friend – becoming a co-owner of a home in a more untraditional fashion which, by the way, does have its advantages. Assuming two or more people share common insight and foresight in addition to being emotionally mature and financially sound, a shared-purchase arrangement can allow one to live in a more spacious or more elaborate home than one would have been able to do, otherwise.
As with anything of importance, you would want to weigh the advantages and disadvantages; and here are some things to consider regarding co-ownership:
Co-owners in a home-purchase agreement are known as the grantees; and they legally share the title, though not necessarily equally. There are a couple of options two or more co-owners can choose from and they include:
1: TIC—as tenants in common
2: JTWROS—as joint tenants with right of survivorship
There are differences and similarities between these two scenarios. The differences, especially, are important to be aware of regarding sell time, down the road, or one party relinquishing his or her interest in ownership, at any given time.
*** The Differences: A TIC arrangement is, by far, the most common method for co-buyers to take a title; and with a TIC, a 50/50 split is not necessary. Unequal shares in the property are perfectly acceptable. If one of the co-owners were to die, then more than likely, that co-owner’s beneficiaries would receive that portion of the home ownership.
In contrast to the TIC, a JTWROS, more often than not, mandates that equal ownership in the home take place. If two people co-own, then a 50/50 split in ownership should be expected; if three people co-own, then one-third ownership goes to each party, etc. Now, if one joint owner were to die, the remaining owner or owners would automatically gain the deceased owner’s portion of the title. This requirement is so entrenched in the law that even if one co-owner stipulated in a will that an heir, outside of the ownership circle, were to be the beneficiary of the respective portion, chances are very good that request would be legally considered null and void.
When second or third co-owners gain ownership rights of the deceased, no court or probate hearings are deemed necessary; it’s that cut and dry.
*** The Similarities: With both the TIC and JTWROS, each owner has an undivided interest in the property, which means all parties can use and enjoy the home entirely. If one party wished to relinquish his or her portion, regardless of what that portion might be, he or she would be required to sell his or her interest in the property. The new buyer would obtain identical rights as the previous owner.
The Co-Ownership Agreement
“Get it in writing!” is an adage we have all heard; and not only should you do this regarding a co-ownership agreement with buying a home, but it’s crucial and prudent! Because we are all only human, we can fall victim to personality rifts, financial challenges and unexpected consequences we never dreamt of when all things, initially, looked picture-perfect.
Co-ownership agreements don’t have to be long and drawn-out, though they can be. Even though these agreements can be short, they should clearly cover the following:
1: What percentage is owned by whom? This is especially important in cases of unforeseen death of a co-owner or a co-owner deciding to sell his or her portion. Know who will receive what, and have it in writing!
2: Who is responsible for on-going expenses? This would be a personal decision between the co-owners; and should be a part of the written agreement. Any number of considerations would go into the decision-making process that should include how much of the mortgage, utilities, property taxes, home insurance, etc. would be paid by whom; based on who might live in the home the most, who paid the most or the least of the down-payment, who is contributing more towards renovation costs, etc. This can be as tailored to the parties’ specifications.
3: What about relinquishing one’s co-ownership? Have you ever co-owned a checking account with another person? If so, you already know you or your partner, in ownership, did not need one another’s permission to withdraw money from the account; you or your partner were able to do that at any time for any reason. The same holds true when one co-owns a home. Regardless of whether it is a TIC or JTWROS arrangement, any co-owner is not obligated to receive approval to sell an interest in the property. As you can imagine, this can lead to some unintended consequences, especially for the co-owner(s) who are not selling.
With that being said, sharing the purchase of a home can, theoretically, work out very well and reduce one’s debt burden. However, a lot of in-depth consideration should take place before any legal papers are signed with a friend or family member since you just might not know them as well as you might think you do. There’s another adage that might be appropriate here, “You never really know someone until you live with them” – so, so true.
As the operational office manager for a web marketing organization, Dan works to underpin businesses like Pecan Plantation Properties in the U.S.A. He works in California, and loves the days alongside his lovely woman and 3 kiddos. Dan-the-man calls tourists to look at his G Plus archives sometime.