Can Two People Buy a House Together?

Purchasing a home represents a financial commitment, and for many, co-ownership with another individual presents a viable path to achieving this goal. This arrangement allows individuals to combine resources, potentially accessing a broader range of properties or more favorable financing terms than might be available to them individually. While the process involves shared responsibilities and considerations, it is a common and feasible approach to homeownership.

Securing a Mortgage Together

When two individuals apply for a mortgage jointly, lenders assess their combined financial profiles to determine eligibility and loan terms. This evaluation includes a review of both applicants’ incomes, employment histories, credit scores, and existing debts. The combined income of co-borrowers can lead to qualification for a higher loan amount than either individual could obtain alone.

Lenders scrutinize the credit history and scores of all applicants. If one applicant has a significantly lower credit score, it can negatively impact the overall loan terms, potentially resulting in a higher interest rate or affecting loan approval. Each applicant’s employment history is also reviewed, with stability and consistency viewed favorably. For self-employed individuals, lenders may require additional documentation, such as profit and loss statements, to verify income.

A financial metric for lenders is the debt-to-income (DTI) ratio, which compares total monthly debt payments to gross monthly income. For joint applications, the DTI ratio is calculated using the combined income and debts of all borrowers. Conventional loans seek a DTI ratio no higher than 43-45%. To assess this, lenders require documentation, including recent pay stubs, W-2 forms, tax returns, and bank statements to verify income and assets.

A joint mortgage creates joint and several liability for the debt. This means each borrower is individually responsible for the entire mortgage amount, not just their proportional share. If one co-borrower fails to make their payment, the other co-borrower(s) are fully responsible for covering the shortfall to avoid default.

Choosing a Property Title

When two people purchase a property together, the choice of how to hold the title carries legal implications for ownership rights, management, and what happens to the property upon the death of an owner. The primary forms of co-ownership are joint tenancy with right of survivorship, tenancy in common, and tenancy by the entirety. Each type defines how shares are held and how they can be transferred or inherited.

Joint tenancy with right of survivorship (JTWROS) means co-owners hold an equal and undivided interest in the property. A defining feature is the “right of survivorship,” which dictates that upon the death of one joint tenant, their interest automatically passes to the surviving owner(s) without needing to go through probate. For a joint tenancy to be established, specific legal requirements must be met. All joint tenants must agree to sell or mortgage the entire property.

Tenancy in common (TIC) allows two or more parties to own distinct, undivided shares of a property, which can be equal or unequal (e.g., one owner holding a 60% share and another a 40% share). Unlike joint tenancy, tenancy in common does not include a right of survivorship. Upon the death of a tenant in common, their share does not automatically transfer to the other co-owner(s) but instead passes to their heirs or beneficiaries as specified in their will or by intestacy laws, requiring a probate process. Owners in a tenancy in common can sell, mortgage, or transfer their individual share independently, without requiring the consent of the other co-owners.

Tenancy by the entirety (TBE) is a specific form of co-ownership exclusively available to married couples. It resembles joint tenancy by including the right of survivorship, meaning the property automatically passes to the surviving spouse upon the death of the other, bypassing probate. A unique characteristic of tenancy by the entirety is its protection against individual creditors of one spouse; creditors of one spouse cannot place a lien on the property without the consent of both spouses. Both spouses must consent to sell, transfer, or mortgage the property. Should the marriage dissolve, a tenancy by the entirety converts into a tenancy in common.

Formalizing Shared Responsibilities

Establishing a clear co-ownership agreement is important for individuals purchasing a home together, particularly for those who are not married, as it outlines how responsibilities will be managed and provides a framework for addressing potential disagreements. This legally binding document details the terms and conditions of shared ownership, preventing misunderstandings and disputes.

The agreement should specify how ongoing expenses will be divided among co-owners. This includes regular costs such as mortgage payments, property taxes, homeowners insurance premiums, and utility bills. It should also address how funds for maintenance, repairs, and unexpected property-related expenses will be contributed and managed by establishing a joint fund with regular contributions.

Decision-making processes for property matters should be clearly defined within the agreement. This covers major repairs, renovations, or any decision to refinance or sell the property. The agreement can stipulate whether unanimous consent is required for certain actions or if a majority vote suffices for others, thereby preventing potential deadlocks.

Provisions addressing changes in the co-ownership arrangement are also important. The agreement should detail what happens if one party wishes to sell their share, including procedures for valuation, a right of first refusal for the remaining co-owner(s), and the terms of a potential buyout. It should also outline steps to take if the relationship between co-owners changes or if one party can no longer meet their financial obligations.

The co-ownership agreement should include a clear process for resolving disputes, such as requiring mediation or arbitration before resorting to litigation. Having the agreement reviewed or drafted by legal counsel is important to ensure it is legally sound, enforceable, and adequately protects the interests of all parties involved.