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DeAnna Reinhardt's Blog

By Deanna Reinhardt | Agent in Centennial, CO

Co-buying a Home

There are many people who want to own a home, but today’s market has made home buying less affordable for some. Some potential homebuyers have decided to collaborate with friends or family members to buy a house they otherwise may not be able to afford.

 

Some people find that the advantage of the tax benefits associated with owning a home are worth co-buying with a friend or family member.

 

There are, however, some precautions you should take when considering co-buying a home. Co-buying a home also takes some thoughtful and careful planning.

 

How will you hold title?

 

The decision as to how you’ll hold title is extremely important. It determines who can sign documents and how the property will be transferred in the case of a death of a co-owner. Co-buyers who are not married to each other can share a title as tenants in common (TIC) or as joint tenants with right of survivorship (JTWROS).

 

What are the differences and similarities between TIC and JTWROS?

 

When each co-owner has an equal interest in the home, a JTWROS will apply with one title held among all the co-owners. If a co-owner dies, his or her share will go to the other co-owners. Ultimately, the last surviving owner will own all interest in the property.

 

In a TIC arrangement, there is no right of survivorship. Instead of going to the last surviving owner, each co-owner can pass along his or her ownership through a will. The remaining tenants in common may find themselves sharing ownership of a home with someone they didn’t initially intend to. A TIC can be dissolved when one owner buys out another, the property is sold, or one owner files a partition action to sell the home.

 

In both a TIC and JTWROS agreement, co-owners have equal rights of possession and each may occupy and use the property. If the home is being rented, each co-owner is entitled to the rental income in proportion to the ownership share.

 

Determine ground rules, and create a written contract.

 

A verbal agreement and a handshake aren’t going to cut it when co-buying a home. While sharing the cost of buying a house can benefit all parties involved, a written agreement needs to be drafted before the transaction is completed.

 

The contract should lay out the relevant concerns of all parties involved. While you may be co-buying with close friends and family members, a written contract is ultimately the only way conflicts can really be resolved aside from court proceedings. Make sure you discuss the contract with an attorney and address the following:

 

  • Who owns what? All co-buyers need to clearly understand what percentage each owns. If one co-owner dies or decides to sell their interest, this information is essential. If you take title as JRWROS, you typically divide your interest into equal parts. If you take title as TIC, you don’t necessarily need to divide your interests equally. For example, two of you may decide that one will receive a greater percentage based on having agreed to maintain the property or based on who contributed more to the down payment on the home.
  • What happens if a co-owner wants out at some point? If a co-owner eventually chooses to sell his or her interest in the property, they can legally do so. However, in the contract, you may want a provision that requires a selling co-owner to give the persons who are staying a right of first refusal to purchase the interest.
  • Who will manage ongoing expenses? Ongoing expenses may include mortgage payments, property taxes, insurance, repairs, utilities, and other maintenance costs. Specify how these expenses will be allocated.

 

Co-buying a home can provide a great benefit to all co-owners, but make sure you proceed with co-buying carefully. Before entering into any co-buyer agreement, discuss it with an attorney.

June 4, 2012:  http://www.cherrycreekhomesearch.com/blog/877393/1314653/Co-buying-a-Home

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