15 Expert-Approved Tips For People Thinking About Co-Buying A Home With Someone Else
The housing market is tough — prices are high and inventory is low. If you're thinking about buying real estate with a friend, sibling, or business partner, you're not alone.
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In 2021, home values skyrocketed by nearly 20% according to S&P CoreLogic Case-Shiller Indices, a national index of home prices. And many experts say home values will continue to increase in 2022.
It's daunting news for potential homebuyers — especially if you were hoping to go it alone. Co-buying, or cooperative buying, is one option that's picking up steam. It's the act of going in on a home or piece of property with a friend, business partner, roommate, family member, or unmarried partner.
A new survey from Realtor.com and HarrisX reports that 31% of Americans, and 41% of Americans 18–34, have bought a home with someone they aren’t married to. And perhaps even more telling, 55% of Americans, and 68% of 18–34 year-olds, say they would consider it.
But, like most things involving money, you should be careful about who you tie yourself to and how you go about it. This advice from Realtor.com will make sure you don't get stuck in a situation you'll regret.
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We tapped Clare Trapasso, the deputy news editor at Realtor.com, to lend her expertise to the topic. Here's what she had to say:
1.Co-buying isn't all that different from buying a home with a spouse, but it takes some extra prep work.
When you're buying a home with your spouse, you likely already know that you want to live together and have similar reasons for buying a home. And, you already know where each other stands financially.
"Unmarried co-buyers may have a little more prep work to get to an in-sync starting point, especially around their finances," said Trapasso. "Co-buyers should also discuss why you want to live and own a home together before making any big moves, whereas married couples are likely on the same page already here too."
2.For starters, you should agree on why you want to buy. An investment? A home to live in together? A rental?
It sounds basic, but this question can be crucial. "Your goals should definitely be aligned with your partner’s if you're deciding to co-buy a home," said Trapasso. "For example, if the person you’re co-buying with only wants to save money and doesn’t plan on being in the home longer than a year or two, then maybe renting would be the better option and you should rethink this partnership."
3.Then, discuss what sort of home you envision buying.
There are a ton of different homes out there and being on the same page is key. Trapasso suggests asking questions like: "Where do you want to live? In a home or a condo? In a move-in-ready home or a fixer-upper?"
If you want to buy a duplex near downtown and your co-buyer wants a fixer-upper near the coast, you may want to rethink the partnership.
P.S. Rather than sending listings by text or email, which can get lost or forgotten about, try Realtor.com's new Collaborate & Share feature. Basically, it allows you to save listings and ask for input from your co-buyer while keeping all the details in one place.
4.Share your credit scores and see if they align.
Trapasso says that when you apply for a mortgage, the lender will assess you both as individuals. That means you'll both need strong credit scores (or a solid backup plan). For a conventional loan, she recommends a credit score of 620 or higher.
"The higher your credit scores, the more likely you’ll be approved for a mortgage and be offered lower mortgage interest rates," said Trapasso, noting that "if one of you has a stellar credit score, you can apply alone, but that voids any assets your partner brings to the table — including salary — and that will likely weaken your mortgage application."
5.And disclose any debt you have.
Debt isn't a fun topic, but if you're thinking about financially binding yourself to someone, all cards need to be on the table.
Trapasso explains that "if one partner has a lot of debt, it could make it harder for them both to qualify for a mortgage or one large enough to meet their needs. While it’s okay to have debt when looking to buy a home if your co-buyer has a low debt-to-income ratio it may help you qualify for a better interest rate."
6.Discuss how things will operate after you close on the home — from mowing the lawn to paying for repairs.
Home buying can be so overwhelming that it's easy to forget to discuss how you'll maintain the home once you have it. Trapasso says this conversation should happen early — long before you close on a home.
She says "if you haven’t already been living together, you’ll want to have an honest conversation about housework and maintenance: Who’s going to mow the lawn? Are you both willing to pay for repairs when the water heater breaks down? These seemingly minor discussions can become major financial issues when you’re homeowners."
7.See how your prospective co-buyer responds to and answers these questions — it can be telling.
While Trapasso says "not being able to agree at the outset isn’t a great sign for the long-haul," so is buying with someone who doesn't communicate well. She says asking these tough questions will reveal "how your co-buyer discusses and resolves them with you" — which can be telling.
In short, you don't want to tie yourself to someone who lies about their credit score or makes you ask several times before disclosing their level of debt.
8.A common red flag is a co-buyer who doesn't seem to be in it for the long haul.
Trapasso says a common co-buying red flag is a co-buyer who "doesn’t seem to be in it for the long haul," explaining that "Co-buying is a commitment, and both buyers need to be on board with the agreed length of time."
9.So is a co-buyer who doesn't hold up their share of the bargain from the start.
If your co-buyer is dragging their feet when it comes to money, or isn't holding up their end of the bargain, you should back out. Remember, they'll need to "pay their share of the home, in order to make it work," according to Trapasso.
10.Make sure you put together a co-ownership agreement.
A co-ownership agreement is a key co-buying component. It protects your home, your relationship, and your financial investment by outlining every detail of your agreement — from the portion of the down payment you'll each pay to who pays for utilities.
"A co-buyer agreement should cover how much each of you will contribute to finances, such as the down payment, mortgage, taxes, utilities, and maintenance," explains Trapasso.
11.Which includes a plan for what would happen if one of you died.
Death is never a fun topic, but a big part of the co-ownership agreement is deciding what happens to the property if one of the owners dies.
There are two options: "A 'joint tenant' agreement states that if one person dies, the other automatically inherits the other’s stake and owns the entire property." While "'Tenants in common' declares that if one person dies, ownership will not automatically transfer to the other homeowner unless that person is named in the will. Instead, the shares will go to the deceased owner’s heirs," explains Trapasso.
12.Talk through all the ways the partnership could go wrong and how you would respond — from one of you moving across the country to a breakup.
"Life happens, and there’s a chance you might not want to live together forever with your co-buyer," states Trapasso. "Co-buyers should prepare for every eventuality – whether it be a break up, relocating for work, or even one of you dying – and have a plan in place for what will happen to your home and your investments."
13.Including, what Trapasso calls the "worst-case end scene."
According to Trapasso, the worst-case scenario for co-buyers would be an "acrimonious split." Meaning, "one buyer may want out but doesn’t want to play nice or sells their share in the property to someone else. Or neither buyer wants to leave, but they no longer want to live together."
The secret to avoiding the headache and heartache is to come up with an agreeable solution before anything happens.
14.To really protect your investment, you might want to involve a lawyer.
Buying a home with anyone — especially a co-buyer — can get messy. Life happens, people fight, and priorities change.
"To protect yourself from the risks of co-buying, the best thing to do is have a contingency plan set with your co-buyer and/or lawyer. This especially includes decisions around the home’s title, which covers each partner’s legal rights and ownership, and determines what happens to the home if one partner dies," said Trapasso.
To play it safe, she says, "You can also work with a real estate attorney to have these things in writing before you close on the property."
15.And don't forget to put aside some cash for things many first-time homebuyers forget about — from closing costs to furniture.
In today's market you might be tempted to spend every cent you have on securing a home, but Trapasso warns that buyers should put aside cash reserves.
"They will need a down payment, money for closing costs as well as some extra left over for furniture, maintenance and emergencies," she said.
Have you tried co-buying? Have any tips for people considering it? If so, share your experience!
And for more stories about life and money, like how millennials have paid off their student loans, check out the rest of our personal finance posts.
