On Valentine’s Day, couples celebrate their closeness. Flowers, gifts, romantic dinners and more highlight the happy day, yet no one can know what the future may hold. For those committed to each other but not yet married, there should be a dose of reality considered if they’re thinking of co-buying a home, lest Cupid’s arrow strike in the wrong place. For as Cyndi Lauper sang many crescent moons ago, Money Changes Everything.
At the same time, while co-buying can potentially be a smart way to invest in your dream home together, like any relationship, there are ups and downs.
Chase Home Lending offers some pros and cons regarding co-buying
Pros
- Better mortgage approval odds. Combining assets may allow for a larger down payment, which could lead to a better loan offer.
- Reduced costs. While each type of co-ownership operates differently, most allow co-owners to split costs that would otherwise fall on a single homeowner.
- Co-buying may help make rental property responsibilities more feasible, especially if you’re able to divide property management duties.
- Prospective homeowners often have to save for years to purchase a home. Co-buying, while not for everyone, is one potential way to speed up this process.
Cons
- If one or more buyers fall behind on payments, it’s the responsibility of the others to pick up the slack. If they can’t, delinquency could have a negative effect on the credit scores of every co-owner.
- In a co-buying situation, all parties are responsible for the entirety of the loan, which may complicate calculating debt-to-income ratio and, in turn, make lenders think twice before approving any additional credit.
- Many decisions may require the approval of all buyers, which might slow down important processes and potentially create conflict among the group.
- Making big decisions with others may be exciting, but it can also inspire conflict among even the closest confidantes. If there’s any uncertainty, it might be worth preserving those relationships and exploring other buying options instead.
Josh Jarboe, broker/owner of RE/MAX Empire Buyers in Kentucky, provided RISMedia with a wealth of information regarding co-buying. He began by explaining why unmarried couples are buying property together in increasing numbers.
“Over the past decade, homeownership trends have shifted due to economic, social and cultural factors,” he says. “Many couples are delaying marriage or choosing not to marry at all, but they still want to build a life together, including buying a home. Rising rental costs, the desire to invest in real estate and the flexibility of co-ownership make homebuying an appealing option for unmarried partners. In some cases, financial incentives, such as the ability to split a mortgage, allow couples to enter the market sooner than if they were purchasing alone.”
Jarboe notes that it’s not just unmarried couples buying property together. Many friends, siblings or even groups of guys or girls are pooling resources to purchase real estate. With housing prices rising, co-ownership offers a way to break into the market, build equity and create investment opportunities without waiting to buy alone or with a spouse. Whether the goal is to live together, invest in rental properties or create a future financial asset, this trend is expanding beyond just romantic relationships.
Agents quizzed on their views of co-buying agreed there were plusses and minuses.
“My thoughts are caveat emptor…know your co-buyer (partner) really well and walk through worst-case scenarios,” advises agent Joni Usdan, with Coldwell Banker in Westport, Connecticut. “I’ve known some of these situations to get extremely hairy, and risk one person feeling an inequity. On the other hand, with the rates so high, it is a great way to ramp up buying power and equity.”
Cautionary winds are also predicted by Pam Rosser Thistle, an agent with Berkshire Hathaway Homeservices Fox & Roach, REALTORS® in Philadelphia, who says that “I do not recommend co-buying. Not only are the two or more parties then connected financially, but their relatives and heirs are to be considered. This can get tangled. An exception would be if the buyers are a group of investors looking to renovate or flip a property. That has a shorter time window and usually works out well.”
Blake Blahut, a broker associate and REALTOR® at Realty ONE Group Inspiration, in Orlando, Florida, opines that “the main advantages of co-buying is it typically expands the buying power dramatically. Being able to have a co-buyer sign on with you allows you to purchase a home that might be otherwise out of budget. It can also be a credit enhancement for both borrowers if one of them is trying to gain more credit history. I have seen that in circumstances of parent/children co-buying situations.
“The huge con of a co-buyer approach is the risk of default of the loan and credit collapse. Should one or both of the homeowners stop making payments or their portions of the payments, it can often lead to also damaging the relationship with the co-buyers, which are often family or friends. Another is in the scenarios where it is an unmarried couple co-buying a home. If they break up, how are the proceeds of the home to be divided should you sell? Who keeps the house if not? I have seen these scenarios and the only thing I would advise is to have a “what if” agreement in place.”
Jarboe stresses that there are certain legalities which should be considered before co-buying.
“Unlike married couples, unmarried partners do not have automatic legal protections if the relationship ends or if one partner passes away,” he says.
Jarboe recommends that before purchasing, they should:
- Discuss ownership structure. They need to decide whether they want to hold the title as joint tenants with rights of survivorship (meaning if one partner passes, the other automatically inherits the home) or as tenants in common (each party owns a percentage of the property, which can be passed to heirs).
- Create a co-ownership agreement. This should outline who is responsible for mortgage payments, property taxes and maintenance, and how proceeds will be divided if the home is sold.
- Consider estate planning. Without a will or legal documentation, an unmarried partner may have no rights to the home if their name isn’t on the deed. A will or trust can help avoid legal complications.
“There are details of co-ownership that are often forgotten when unmarried couples consider buying together,” adds Jarboe. Things they must consider include:
- Exit strategy. Many couples don’t think about what happens if they break up. Having a plan for how to divide or sell the property before issues arise can prevent financial and legal headaches.
- Credit and financial responsibility. Both partners should understand their individual credit scores, mortgage obligations and how their financial situations impact homeownership. If one person contributes more to the down payment, will that be reimbursed if the home is sold?
- Home improvements and financial contributions. Who is responsible for upgrades and renovations? If one partner invests more money into improvements, is there a way to track and reimburse those expenses?
“Buying a home together is a major milestone, whether a couple is married or not,” says Jarboe. “The key to a successful co-ownership arrangement is careful planning and clear communication. By considering legal protections, financial contributions and future contingencies, unmarried couples can make informed decisions that safeguard both their investment and their relationship.”
Jarboe’s advice for unmarried couples considering homeownership ends with these points.
- Have open and honest conversations upfront. Discuss worst-case scenarios before buying to ensure both parties are protected.
- Get everything in writing. A legal document spelling out ownership percentages, financial responsibilities and exit strategies can prevent conflicts.
- Work with experienced professionals. A real estate agent, attorney and financial advisor can help ensure the purchase is structured properly.
- Protect yourself legally and financially. Consider life insurance policies, wills or trusts to prevent complications in case of unexpected events.
Jeffrey Decatur, a broker associate with RE/MAX Capital in Upstate New York, puts a bow on the topic.
