Co-buying a home? Here's what you need to know

Co-buying a home can be very rewarding. The least it does is allowing you to have your own home. Millions of people don’t have the down payment to buy a house. They may not be able to afford the mortgage. They may not even qualify for a home loan. Such problems can be overcome with the option of co-buying.

Co-buying a home is where more than one person puts together the down payment, equally or unequally, and applies for a mortgage together. They pay their shares of the mortgage and own equal or unequal portions of the home. The ongoing maintenance costs, property taxes, water taxes, utility bills and cost of repairs and upgrades are all shared by the co-owners.

Co-buying allows people to buy homes if they cannot buy on their own. With the same budgets or down payments and affordability, people can buy better and larger homes at a more desirable location. Spending less on down payment and on mortgage respectively, the co-owners can save more money and can eventually buy their own homes.

Friends, siblings, cousins and even coworkers can come together and co-buy a home. But there are certain grey areas that must be clarified at the outset.

  • Who owns how much and what? Depending on the money both co-owners put in, the square footage and the entire premise must be split into two. It should be a fair process and it must be explicitly laid out in writing. If it is a two-storey home, then each co-owner can take possession of an entire floor. If it is an apartment or condo, then there can be a bedroom for both and a common living space, kitchen and some other common facilities. Whatever is the equity of every co-owner in the property, it must be very clearly written down and it should be a binding contract between the parties.
  • Problems may arise when one party defaults or doesn’t pay his or her share of the mortgage, water or energy bills and other expenses. There should be an agreement in place to make it imperative for the parties to take care of their financial obligations. There should be contingency or failsafe terms to protect the other co-owner who has been making timely payments.
  • There should be a long term plan that both co-owners agree to. There can be an exit strategy. Both parties can agree to sell the home in five or ten years when they have more money to buy their own properties. They could continue owning the property and rent it out and split the proceeds. There can be many endgames but they should be discussed. If one co-owner plans to sell his or her equity all of a sudden, the other co-owner may not be very receptive to the proposition.

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