Can Co-Buying Help You Get the House You Need?

Here’s a simple truth – purchasing a home is difficult today. The volatile nature of the housing market and the high cost of real estate has forced the first time home buyer to get creative. 

A response to these challenges that’s quickly becoming a popular trend is co-buying. Also called co-ownership, this strategy involves two or more people purchasing a home together and sharing ownership rights and the financial responsibility of paying the mortgage. 

The trend has taken off with millennials looking for smart ways to build equity. Many are partnering with non-romantic co-buyers so they can become homeowners and start setting the foundation for a sound financial future. 

However, it’s not just millennials who are co-buying. People of all ages and situations benefit from this strategy. Whether you’re new to homeownership or an experienced buyer, it may be the best way to get into the home you’re after. 

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The Two Main Types of Co-Buying

There are a few ways to enter into a co-buying situation. The one you choose will most likely depend on your personal and financial status.

Occupant Co-Buyers 

This involves two people purchasing a home with the intention of living there together. It’s a common approach for multi-generational families or domestic partners who want to split ownership rights. 

Occupant co-buyers share all the costs associated with homeownership. This includes the mortgage, maintenance, property taxes, and homeowner’s insurance.  All owners are listed on the title, and many times each person holds a certain percentage of ownership. 

Non-Occupying Co-Buying

The opposite of occupancy co-buying, this approach involves multiple people purchasing property with no intention of making the home their primary residence. Many times, the co-buyers use the home as an investment, renting it out to bring in income. 

It’s also a way for someone with bad credit, an unstable employment history, or limited funds to get approved for a mortgage. A co-signer (typically a friend or family member) with more assets will increase the buyer’s clout during the loan application process. This is a great option if you’re a first time home buyer who’s not quite financially ready for homeownership but has someone willing to help you out. 

The Pros and Cons of Co-Buying

Like most home buying strategies and loans, co-buying has benefits and challenges. It’s not for everyone. If you’re thinking about moving forward, all parties need to weigh the pros and cons. 

Benefits of Co-Buying

One of the most attractive features of co-ownership is that it allows you to share the financial obligation. This means each co-buyer’s mortgage is lower and they split all home-related expenses. 

Another major benefit is the adrenalized buying power. Lenders see co-buyers as low-risk due to their multiple incomes. This means you’re more likely to get approved for a sizable loan and could even enjoy attractive terms. 

Other benefits of co-buying include: 

  • Co-ownership between family members fosters a stronger bond. 
  • A first time home buyer can start building equity. 
  • Funding and engaging in home improvement is easier. 
  • Each owner can take advantage of tax benefits. 

If you’re still on the fence about co-buying, an experienced mortgage professional can advise whether it’s right for you. 

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Potential Challenges 

Several issues could arise during a co-ownership arrangement. It’s important that you partner with the right people and that there’s an understanding of everyone’s long-term plans. 

A common challenge is financial dependency. If one party suddenly loses their job and can’t pay their bills, it’s up to the other party to pick up the slack. This could put a huge strain on the relationship.

There’s also the potential for difficulty if one party wants to sell or leave the agreement. You’ll have to find a buyer, determine a suitable valuation, and deal with the legal complexities of making a change. 

Other drawbacks of co-buying include:

  • Co-owners may not agree on renovations or design changes. 
  • The relationship between you and the co-buyer could sour. 
  • If the other co-owner defaults on the mortgage, it can hurt your credit. 
  • Life changes could force one party to have to exit the agreement.

Transparency is key when thinking about co-buying. Each owner should be fully invested in the plan, whether it’s an occupant or non-occupancy situation. 

Multi-Generational Living Is on the Rise

Households with three or more generations of one family have nearly quadrupled over the last decade. Many of these multigenerational families co-buy homes and enjoy financial peace of mind alongside their loved ones. 

Along with financial security, families that opt for multigenerational living have the chance to form stronger bonds as they support each other. This could mean caring for elderly family members, helping out with childcare, or giving a family member the freedom to pursue an education. 

If this sounds like a situation that would suit your family, consider co-buying. You’ll need to decide who’ll have primary ownership, consider the liquid assets of each co-owner, and determine how long each family member plans on living in the house. 

If you’re a first time home buyer, you could also consider having a family member co-sign on your mortgage to help your chances of getting the loan. 

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The Role of Your Credit Score in Co-Buying

Your credit is a significant determining factor during the loan approval process. In a co-buying situation, each applicant’s credit score is considered, which can present a challenge. 

If one co-buyer has a rocky credit history and low score, it can compromise the loan. Even if other applicants have strong scores, you may get denied. 

Typically lenders will pull each applicant’s credit scores from all the credit rating agencies. Then, they’ll calculate a median score. This is why one extremely low score can ruin your chance of getting the loan. 

It’s important to consider each co-buyer’s financial standing before applying for a loan together. The best-case scenario is that each applicant has a good credit score, assets, and a low debt-to-income ratio. 

The Long-Term Considerations 

Whether you’re a first time home buyer or an experienced homeowner, it’s crucial to have a long-term plan. Co-ownership adds another level of complexity, making it necessary to consider things you wouldn’t when purchasing on your own. 

Thinking about your relationship with the other co-buyer is of utmost importance. Only consider co-ownership with someone you trust and know will be in your life for a long time – whether it’s co-buying with a good friend or spouse. 

It’s also important to be transparent with each other about your long-term goals. Do you intend to sell one day? Is there a chance you’ll want to relocate down the road? These are the types of questions you should ask each other. 

Finally, you’ll need to understand each other’s financial situation. Talk about your assets, income, savings, and long-term goals. This will give you peace of mind when entering into a partnership. 

A Mortgage Team for the First Time Home Buyer 

If you’re considering co-buying, start by sitting down with the other parties and carefully considering your options. It can be a hard decision, and you’ll need a professional to help you navigate the process. 

A qualified mortgage advisor will paint a clear picture of what you’ll need in order to qualify for a loan so you can make an informed decision. They’ll also let you know what rate you’ll get and the loan terms you can expect. 

Start your journey by using our mortgage calculator to figure out affordability. Once you’re ready to move forward, the Moreira Team can walk you through the process.

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