Can You Buy a House With Another Person?

Buying a home with another person has become a popular path to homeownership, offering a way to combine resources and share responsibilities. This approach allows individuals to access properties that might otherwise be out of reach financially, achieve greater affordability, or enter the housing market sooner.

Types of Shared Ownership

When multiple individuals purchase a property together, their ownership structure is defined by how their interests are held. Two common classifications are Tenancy in Common and Joint Tenancy with Right of Survivorship. Understanding these distinctions is important as they dictate how ownership shares are managed, particularly concerning transferability and what happens upon an owner’s death.

Tenancy in Common (TIC) allows co-owners to hold distinct, undivided interests in the property, meaning each owner possesses a share of the entire property. Shares do not have to be equal; for example, one owner might hold a 60% interest while another holds 40%. There is no right of survivorship, meaning if one co-owner passes away, their share does not automatically transfer to the surviving co-owners. Instead, the deceased owner’s interest becomes part of their estate and is distributed according to their will or the laws of intestacy.

An owner in a Tenancy in Common arrangement can sell, mortgage, or transfer their individual share without needing the consent of other co-owners. Any new owner would become another tenant in common, subject to any existing co-ownership agreement. This structure is often favored by unrelated parties who wish to maintain separate control over their investments.

Joint Tenancy with Right of Survivorship (JTWROS) requires all co-owners to hold an equal and undivided interest in the property. Each joint tenant owns 100% of the property collectively. The defining feature is the right of survivorship, meaning upon the death of one joint tenant, their interest automatically passes to the surviving joint tenant(s). This transfer happens outside of probate, making ownership transfer relatively seamless.

For a Joint Tenancy to be created, four “unities” must be present:
Unity of possession: All have equal right to possess the whole property.
Unity of interest: All have equal ownership shares.
Unity of time: All acquire their interests at the same time.
Unity of title: All acquire their interests through the same document.
If any of these unities are broken, such as one owner selling their interest, the joint tenancy is severed and converts into a tenancy in common. This structure is often chosen by married couples or close family members.

Financial Implications of Co-Ownership

Purchasing a home with another person involves understanding financial commitments and shared responsibilities. The initial down payment can be contributed in various ways, from an equal split to disproportionate contributions. Lenders typically require a down payment, ranging from 3% for certain loan types to 20% or more to avoid private mortgage insurance. These funds are usually aggregated from all co-buyers to meet loan requirements.

When applying for a joint mortgage, all co-borrowers’ income, credit scores, and financial histories are assessed by the lender. While combined incomes can increase borrowing capacity, a lower credit score from one applicant might negatively impact the overall interest rate offered or even the approval of the loan. Lenders evaluate the collective financial strength to determine the maximum loan amount and the terms of the mortgage.

A joint mortgage involves “joint and several liability,” meaning each borrower is individually responsible for the entire debt, not just their proportional share. If one co-borrower fails to make their payment, the other co-borrower(s) are legally obligated to cover the full monthly mortgage payment. This liability extends to any missed payments, late fees, and potential foreclosure actions, underscoring the importance of trust and financial reliability among co-owners.

Beyond the mortgage, co-owners share ongoing homeownership expenses. These include property taxes, assessed annually by local governments, varying by location and property value (often 0.5% to 3% of assessed value). Homeowner’s insurance is another mandatory expense, protecting against perils like fire and theft, with costs varying by location, coverage, and property characteristics. Utility bills (electricity, water, gas) are also shared, as are costs for routine maintenance and unexpected repairs.

Some properties may be subject to Homeowners Association (HOA) fees, recurring charges for common area upkeep and amenities. These fees are typically paid monthly or quarterly, ranging from under $100 to several hundred dollars, depending on services provided. All ongoing costs necessitate clear agreements on how they will be divided and managed to prevent financial strain or disputes among co-owners. Establishing a shared fund or payment schedule can help manage these expenses effectively.

Co-owners may deduct certain expenses on their federal income tax returns if they itemize. This includes mortgage interest (reported by the lender on Form 1098) and property taxes, up to certain limits. The deduction for state and local taxes, including property taxes, is generally capped at $10,000 per household annually. Co-owners must determine how these deductions will be allocated among themselves, often based on their contribution ratios to the expenses. The Internal Revenue Service (IRS) allows for the deduction of these expenses by those who actually paid them, provided they are legally obligated on the mortgage and own the property.

Formalizing Your Co-Ownership Agreement

Establishing a formal co-ownership agreement is an important step for individuals purchasing a home together, as it provides a clear framework for managing their shared asset. This document is a separate legal contract between the co-owners, distinct from the property deed, and it outlines their respective rights and responsibilities. Without such an agreement, potential disagreements can escalate into costly legal battles, especially when unforeseen circumstances arise.

The agreement should detail contribution ratios for initial and ongoing costs. This includes how the down payment was split, and the division of monthly mortgage payments, property taxes, insurance premiums, and utility bills. It is also important to specify how funds for routine maintenance, major repairs, and property improvements will be contributed. Defining these financial expectations helps prevent misunderstandings and ensures all parties understand their monetary obligations.

Decision-making processes for the property should also be clearly outlined in the co-ownership agreement. This involves establishing how consensus will be reached on significant matters, such as undertaking major renovations, making substantial repairs, or refinancing the mortgage. The agreement might specify that certain decisions require unanimous consent, while others can be made by a majority vote, depending on the number of co-owners.

Exit strategies are important provisions within a co-ownership agreement, addressing how one party can sell their share or how the property will be disposed of if one owner wishes to move on. The agreement might include a right of first refusal, allowing remaining co-owners the option to buy out the departing owner’s share before it is offered to an external buyer. It should also outline the valuation method for determining the buy-out price, whether through an appraisal or a pre-determined formula. This section also covers scenarios where the property needs to be sold on the open market, detailing how the proceeds will be divided.

The agreement should also include mechanisms for dispute resolution, providing a structured approach to address disagreements that may arise between co-owners. This could involve mediation as a first step, where a neutral third party helps facilitate communication and find common ground. If mediation is unsuccessful, the agreement might stipulate arbitration or outline the process for legal action. It is advisable to have an attorney draft this agreement to ensure it is legally sound and comprehensive.

Navigating the Home Purchase Process Together

The journey of purchasing a home as co-buyers begins with securing pre-approval for a joint mortgage, an important first step that determines the maximum amount you can borrow. Lenders assess the combined financial profiles of all applicants (income, debts, credit scores) to issue a pre-approval letter. This letter signals to sellers that co-buyers are serious and qualified, streamlining the home buying process. Obtaining pre-approval early helps set a realistic budget for house hunting.

Once pre-approved, co-buyers can begin the house hunting phase, which often involves aligning on preferences for location, property type, and desired amenities. It is important for all parties to communicate their individual needs and compromise where necessary to find a property that suits everyone’s requirements. Shared vision and clear communication are important during this search.

When a suitable property is identified, co-buyers will work together to make a joint offer, which typically includes the proposed purchase price, contingencies, and desired closing date. All co-buyers’ names will appear on the purchase agreement, indicating their shared commitment to the transaction. The offer may also include earnest money, a deposit demonstrating the buyers’ good faith, which is typically held in an escrow account.

Following an accepted offer, the due diligence phase commences, involving a home inspection and appraisal. The home inspection assesses the property’s structural and mechanical condition, identifying necessary repairs or concerns. The appraisal determines the property’s fair market value for the lender, ensuring the loan amount does not exceed the home’s actual worth. Both steps provide important information before finalizing the purchase.

The closing process is the final stage where property ownership is officially transferred to the co-buyers. At closing, all co-buyers will sign numerous legal documents, including the promissory note for the mortgage and the deed. Funds are transferred from the lender to the seller, and the down payment and closing costs are paid by the buyers. The title company or attorney overseeing the closing ensures that all legal requirements are met and that the property’s title is clear.