How Two People Can Buy a House Together

Purchasing a house together is a growing trend, extending beyond traditional family units to include friends, unmarried partners, or other collaborators. This arrangement offers an avenue to achieve homeownership, often by combining financial resources to overcome escalating real estate costs. While offering benefits, co-ownership introduces complexities requiring careful planning to ensure clear responsibilities and expectations.

Financing the Purchase

When two individuals purchase a home jointly, securing a mortgage involves assessing both applicants’ financial health. Lenders evaluate combined financial profiles, including credit scores, income, and debt-to-income (DTI) ratios, to determine loan eligibility and terms. A co-borrower is equally responsible for repaying the loan, and their financial standing directly impacts the approval process.

Lenders typically consider the lower of the median credit scores between co-borrowers for most mortgage types, such as those backed by Freddie Mac, FHA, and VA. For Fannie Mae loans, some lenders may use an average of the median credit scores, potentially benefiting applicants with a lower individual score if their co-borrower has strong credit. A high combined income and low DTI ratio can improve loan approval chances and may lead to more favorable interest rates and terms.

Pooling funds for a down payment and closing costs is a significant advantage of co-ownership, allowing individuals to combine resources for these substantial upfront expenses. Closing costs, typically 2% to 5% of the loan amount, include appraisal fees, title insurance, and loan origination fees. Mortgage options for co-borrowers include conventional, FHA, and VA loans, each with specific requirements for co-borrower relationships and occupancy. Conventional loans generally allow any qualified co-borrower. FHA loans may require non-occupant co-borrowers to be related by blood, marriage, or law, or necessitate a higher down payment.

Forms of Co-Ownership

When two people purchase property together, they must decide on a legal co-ownership structure. The most common forms are Tenancy in Common (TIC) and Joint Tenancy with Right of Survivorship (JTWROS). Each structure carries distinct implications for ownership shares, interest transfer, and property disposition upon an owner’s death.

Tenancy in Common (TIC) allows co-owners to hold distinct, separate, and potentially unequal shares of the property. For example, one owner might hold a 60% interest while another holds 40%. Each tenant in common has the right to use the entire property, regardless of their ownership percentage. TIC has no right of survivorship; upon a co-owner’s death, their share passes to their heirs or beneficiaries, not automatically to surviving co-owners. This structure provides flexibility, as an owner can sell or transfer their interest independently without other co-owners’ consent.

Joint Tenancy with Right of Survivorship (JTWROS) requires co-owners to hold equal shares. Its defining feature is the right of survivorship: if one co-owner dies, their interest automatically transfers to the surviving co-owner(s) without probate. This bypasses the deceased owner’s will and estate, ensuring ownership continuity. To establish a joint tenancy, four unities must be present: unity of time (all acquire interest at the same time), unity of title (all acquire interest by the same deed), unity of interest (all have equal interests), and unity of possession (all have equal right to possess the whole property).

Creating a Co-Ownership Agreement

A formal co-ownership agreement is an essential document for individuals purchasing a house together, particularly for those who are not married. It establishes clear expectations and responsibilities. This legally binding contract outlines shared ownership terms and conditions, preventing future disputes. It typically identifies all co-owners, describes the property, and specifies ownership shares.

The agreement should detail how financial obligations will be shared, including mortgage payments, property taxes, homeowner’s insurance, and utility bills. It should also address unexpected costs, such as major repairs or emergency renovations, sometimes by establishing a reserve fund. Provisions for maintenance and other recurring expenses are also essential.

A comprehensive co-ownership agreement should include clauses for dispute resolution, such as requiring mediation or arbitration before legal action. It also needs to outline procedures for one owner wishing to sell their share or for the entire property to be sold. This includes specifying if other owners have a right to buy out the departing owner’s share and how that share’s value will be determined.

Managing Ongoing Shared Expenses

Managing recurring property ownership costs after purchase requires a structured approach among co-owners. These ongoing expenses typically include monthly mortgage payments, property taxes, homeowner’s insurance premiums, and utility bills like electricity, water, and internet. Establishing clear systems for tracking and contributing to these costs helps maintain financial harmony.

Co-owners often set up a shared bank account for household expenses. Each owner can contribute a predetermined amount regularly, ensuring funds are available for scheduled payments. This method simplifies financial tracking and reduces the likelihood of missed payments or disputes over individual contributions. The co-ownership agreement should specify the exact split of these expenses, which may be equal or proportional to ownership shares.

Beyond fixed monthly costs, properties incur variable expenses for routine maintenance and minor repairs, such as lawn care, cleaning services, or unexpected plumbing issues. It is advisable to budget for these collectively or establish a clear process for how such costs will be approved and shared. Consistent communication and regular reviews of shared expenditures help ensure all parties are aware of their financial obligations and that the property is well-maintained.

Selling or Transferring Ownership

When co-owners decide to end their joint ownership, they can sell the entire property or one owner can buy out the other’s share. For a full sale, all co-owners must generally agree to the sale and its terms. Proceeds are typically divided based on ownership shares outlined in the co-ownership agreement. If co-owners cannot agree on a sale, a partition action can be filed in court, potentially resulting in a court-ordered sale and division of proceeds.

If one co-owner wishes to buy out the other’s share, the process begins with determining the property’s current market value, often through a professional appraisal. The selling owner’s equity share is calculated by subtracting the outstanding mortgage balance and other property-related debts from the appraised value, then applying the ownership percentage. A written buyout agreement should outline the agreed-upon property value, the selling owner’s share, the payment amount, and the transaction timeline.

The buying co-owner may need to refinance the existing mortgage into their sole name to remove the selling co-owner’s liability. Once buyout terms are finalized and financed, the selling owner’s interest is transferred to the buying owner, typically through a grant or quitclaim deed, which is then recorded with the county. This ensures legal ownership transfer and updates the property title.