The idea of sharing a house with someone else, on the surface, seems like a great way to have your own home while not having to pay full price for it. Everything can be shared — the cost of the home, its maintenance, any mortgage payments — but you get to enjoy the full benefits of your own place. Plus, since costs are shared, both of you have more purchasing power to spend on other things. This idea can be very tempting especially for those who are tired of paying rent, knowing that all that rent money just goes down the drain. every month Besides, if you are buying a house together with your best friend, your business partner, a work colleague, or even a relative, what can go wrong?
During this pandemic, the real estate industry suffered greatly in the Philippines and many other countries, dropping the prices of raw lots, houses, and condominium units significantly. Even Homes For Sale in Vancouver, for example, saw price drops. The industry is only starting to recover with increasing vaccination rates. This is actually a great time to consider buying a house before prices jump back up to their pre-pandemic levels. Many, who could not afford to purchase houses before, are now taking the opportunity to do so. Sharing with someone they know is one more reason to make the purchase even more affordable.
However, as they say, there are always pros and cons to everything. Buying a house jointly with someone else can work, if you know how to deal with, and are fully aware of, possible downsides. Let us go through some important considerations you need to be fully aware of before you make that crucial decision to share your dream house with another.
Decide on your type of co-ownership
When you buy a house, you are given a deed that shows you were given ownership of the property. However, under the law, there are two types of joint ownership.
Tenancy in Common (TIC) is usually the type of ownership between unmarried people. It means that each co-owner has a separate and distinct share of the property and upon one owner’s death, his share goes to his heirs, not to the other co-owner. This joint ownership need not be 50:50 all the time. In fact, one co-owner may own, for example, 40%, while the other has a 60% interest due to the bigger amount contributed to buying the house.
Joint Tenants with Right of Survivorship (JTWROS) is one where the other co-owner inherits the interest of the co-owner who dies. This is usually more common between husband and wife where one wants the other to inherit the property upon his/her death.
This means that both of you need to draft a co-ownership agreement if you do not want conflicts to arise down the road. These can cover agreements on ownership percentages, maintenance expense sharing, and how opting out by one party should be handled. This should be as comprehensive as possible, including who can claim the mortgage interest deduction for tax purposes.
In general, TIC is usually the way to go for unrelated co-owners while JTWROS is usually the option taken by married couples and family members as it ensures the interest is passed on to the next of kin.
Manage credit score risks
Chances are, both of you would take up some form of financing, like a mortgage, to buy the house. That means both your credit scores will be on the mortgage. This is not a problem if both of you observe good credit habits and pay your share of the mortgage payments on time. But if one of you slips up, the delayed payment will affect your credit score as well. In addition, it will affect the interest rate on the mortgage loan and the total interest over the entire life of the loan. Make sure you consider this possibility at the onset and agree on how to resolve any such situation.
Mutually agree on how to resolve a moving-out option
If you were sharing a rented apartment before, it was so much easier to say you wanted to move out in case things were not working out between you and your flatmate. It’s not quite that easy when you both purchase a house.
If your names are both on the mortgage, you may need to sell the house or have the loan refinanced under just one name. That can be a huge problem if that person is not financially capable of assuming the entire loan – the very reason why you both shared the house in the first place.
A viable exit plan should be part of the co-ownership agreement that you need to discuss together before you get into this arrangement.
After seriously weighing the pros and cons, and you decide to push through with purchasing a home together with someone, just be sure that you are well covered in the situations listed above. Sharing the purchase of a home is one step towards eventually being able to afford one of your own and if the issues above are addressed, you both should be okay.