As real estate prices continue to skyrocket into the stratosphere of unaffordability, a solution for making home buying possible has emerged, especially for millennials: co-buying. Is it right for you? The pros and cons.
Emerging solution to homeownership: Co-buying
The sky-high prices of homes have put them out of reach for many people, particularly for the millennial generation, who lag behind gen Xers and baby boomers in home ownership.
Amid housing unaffordability, a novel new trend has emerged: co-buying.
Co-buying is just what it sounds like – two or more people jointly purchasing a home. The investment and ownership shares of the property don’t have to be equal. Partners, friends, or roommates are pooling their finances in order to have the combined buying power needed to purchase a home.
Between 2014 and 2021, co-buying increased nationally by an estimated 771%, gauging roughly by co-owners with different last names, according to the Wall Street Journal.
Amid this new trend, a number of companies have emerged in recent years to help facilitate co-buying. They include Pairadime, Live Work in Denver, and CoBuy in Seattle.
Two ways to co-buy a home
Purchasing a home with another person is defined as a joint mortgage. There are two ways to approach purchasing a home with a friend, according to FindLaw, NASDAQ reports. (1) the parties involved can have unequal shares in the property. (2) Joint tenancy. In this form, all co-owners take equal parts of the property at the same time, and will all be on one deed.
Experts say forming an LLC is a costly and unnecessary way to go about it, and some mortgage lenders will not extend a loan to buyers in this situation.
The pros of co-buying a home
There are several advantages to co-buying a home with another person including making it easier for you to qualify for a mortgage, helping with the down payment, sharing the cost of the mortgage loan, and splitting the work associated with home ownership, the Motley Fool reports.
The cons of co-buying a home
There are several potential pitfalls when it comes to co-buying a house with someone else.
First, you’re making a big bet that the other party will share the expenses and legal responsibility as promised.
Second, if your friend has bad credit, low income, or lots of debt, it could actually make it harder for you to get a home loan.
Third, this is a partnership, and as such, you will not have sole control over what happens to the house. If the person needs to get out of the loan or sell their interest in the house, it can get quite complicated.
In a “tenancy in common” agreement, where the co-buyers can have unequal shares in the property, the arrangement can be broken in one of a few ways: If one of the co-owners buys out the other; If the house is sold and proceeds are split; and if a co-owner dies and their heir sells the deceased person’s stake in the house.
In any “joint tenancy” agreement, where all the co-owners involved take equal parts of the property, the agreement can be broken if a co-owner decides to sell or transfer their share of the home to another person. In that scenario, after the sale, the joint tenancy agreement then becomes a “tenancy in common” agreement.
