Buying a home together can be complicated. Whether you're in a relationship, family members, or good friends who are making an investment together, sometimes adding multiple opinions and emotions into a financial situation can get a little dicey. That's why it's really important plan out your homeownership logistics before you even get started.
If you're thinking of buying a house with someone else, this post is for you. We've compiled a list of important questions to ask yourselves before going on a single showing. Once you discuss your answers and have a plan in place, we guarantee that you'll be able to move forward in your home search mych more confidently.
Whose name will go on the deed?
The deed, or title, on a property is the document that signifies ownership. There are a few different ways that you can divide ownership on a property and it's extremely important to make that choice up front because it will determine what happens to the property if one partner should decide to sell or if your relationship goes sour.
Here are your options:
- Sole Ownership: Just as it sounds, one person's name is on the deed. This is usually used when one person is in a significantly better financial situation than the other and and assets need to be protected.
- Joint Tenancy (With Right of Survivorship): Each partner owns a 50% stake in the property and, in the event that one of them dies, the other inherits sole ownership.
- Tenants in Common: More lenient than joint tenancy, tenants in common allows for multiple partners to share in ownership of the property. Each person can own a different percentage and can specify who they would like to have inherit their share in the event of their death.
- Limited Liability Company (LLC): Recommended in the event that you're buying an investment property, because it gives you more flexibility in terms of number of the owners and it protects your personal assets in the event that a tenant should default.
Keep in mind that these are catch-all categories. We strongly recommend that you also visit a real estate attorney to draw up a supplemental agreement outlining the particulars of your unique situation.
How will you finance the property?
The next question is how you will handle paying for the property. If you'll need to apply for a mortgage, it's best to talk to a loan rep. He or she will be able to look at each person's financials — your incomes, credit scores, debt, and savings — to determine if it's better for one or more of you to apply for the loan.
After determining the best way to pay, you'll need to have a frank conversation. Whether you'll be making mortgage payments or are pooling cash, you'll need to lay out exactly how much each person is responsible for paying and when. Even though it may be uncomfortable, you'll also want to put provision for what will happen if someone stops making their payments.
How will you handle the other costs of homeownership?
Remember that the mortgage is not the only cost you'll have to cover as new homeowners. There's utilities, taxes, association fees, and maintenance costs to consider.
Whether you decide to split everything equally or make another arrangement, you'll need to discuss how you'll cover those costs and how they'll be paid. Will each of you put money into a joint account or write separate checks? Again, it's better to have a firm plan in place before buying so that there is no confusion when the bills start rolling in.
What happens if something goes wrong?
This might be the hardest discussion to have, but it's also the most important. Unfortunately, unless two people are legally married, there's not a lot of precedent for how to divide assets in the event of a fallout. If your relationship falls outside those parameters, you really should put a plan in place for what would happen if the relationship dissolves.
Once you have a plan in place that everyone feels is fair, go to a real estate attorney and have a contract drawn up. Hopefully, you'll never have to use it, but everyone will rest easier knowing it's there.