Qualifying for a mortgage isn’t always a straightforward process and your financial picture might not fit a simple profile. Tenancy in common offers a modern financing solution to help you build your wealth through property ownership. Sometimes the tenants in common have equal stakes in the property, but more often than not, buyers own different percentages based on their interests. There are several benefits to tenancy in common arrangements.
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Tenancy in Common Explained
“Tenancy in Common” and “Tenants in Common” are interchangeable terms and are sometimes called TIC dwellings. The easiest way to think of tenancy in common is when a property has more than one buyer, and each buyer has a particular stake in the property, and ownership is not equal among the buyers.
For example, tenants in common financing offers non-married couples, friends and family, investors, and other interested parties the ability to purchase and finance a property together while dividing ownership however they want to. One party can own 30% while another owns 10%, etc. Tenancy in common allows buyers to decide how much each party will own and how the property title is structured.
Quick note: “tenants” commonly refers to occupants of a rental or purchased property. However, tenants in common is a different term. Tenants in common (and tenancy in common) refer only to the title structure of a purchased property.
Who Owns the Property Title? Joint Tenancy vs. Tenancy in Common
A property title declares who owns any given property. When you buy a property with other investors, whether they are partners, friends, family, or others, there are several types of ownership structures. However, the two most common types of ownership are Joint Tenancy and Tenancy in Common.
Joint Tenancy is most common among married couples or long-term partners who decide to buy a home together. In joint tenancy, both parties enjoy equal ownership of the home. Each will own 50% equity, and each owner can borrow against their equity portion. If one of you dies, the surviving co-owner will automatically own the property in full.
Tenancy in Common is different. Tenant in common agreements allows buyers to split the equity however they wish. Notably, ownership does not need to be split equally among the investors. After purchase, each owner can sell their ownership stake in the property at any time and invest elsewhere.
Tenancy in Common is also an agreement that allows each owner to sell their portion of the property at any time. You can further designate your ownership to heirs or other beneficiaries.
Benefits of Tenancy in Common
1. Tenancy in Common allows you to divide ownership as you see fit
Property ownership doesn’t always need to be 50/50 or equal among property owners. With tenancy in common, you can structure the agreement to better suit your needs–both as a property owner and an investor. Decide how much ownership you’ll be willing to take on and how many property owners you’d like to include. Buying a home doesn’t need to be a solo venture.
2. Tenancy in Common allows each owner to designate a beneficiary
If or when an owner passes away, their ownership interest does not automatically go to the other owners. In a tenancy in common arrangement, each owner can designate their beneficiary or heir to assume ownership when they pass away.
At the same time, any owner can designate other owners of the same property to inherit their stake of the property if they die. The benefit here is that you have the choice.
3. Tenancy in Common financing might help you qualify for a better mortgage
Mortgage lenders have strict criteria to get the lowest mortgage rate and the best home loan. Buying or investing in a property with others could help you qualify for better financing than you could on your own. Together, you’ll have a larger combined income and more cash reserves. In addition, if each buyer has a strong credit rating, you’ll be able to qualify for better financing.
4. Tenancy in Common Financing could help you own property sooner
Investing in a property with others can reduce financial stress and increase your buying power. You’ll be able to make an affordable down payment based on your ownership stake in the property and not overextend yourself. For example, you can decide to be a 10% property owner instead of a 50% owner. This could help you become a property owner sooner and begin to build equity.
5. As co-owners, you’ll be able to share the financial costs of property ownership
Tenancy in common property owners often have co-ownership agreements drawn up to clarify how maintenance costs, property taxes, and insurance will be covered.
Drawbacks to Tenants in Common Arrangements
- As co-owners, you’ll need to agree on everything when it comes to the house. Home repairs, maintenance, and insurance. These decisions are typically made through a co-ownership agreement.
- Any owner can sell their stake in the property without permission from the other owners. While the agreement’s terms must be upheld, no owner is required to keep their stake in the property. For this reason, you may find yourself co-owners with new investors as time goes on.
- When a co-owner sells their stake in the property or dies, the remaining co-owners don’t automatically assume property rights for that portion.
- All co-owners are equally liable to the mortgage and property taxes. You could risk foreclosure if one owner stops paying the mortgage or property taxes.
How to Apply for a Mortgage with Tenants in Common Financing
When you apply for financing with tenancy in common, mortgage lenders treat each buyer equally as co-applicants. Each buyer will be required to provide financial documentation, a current credit report, bank statements, income and employment history.
As an experienced mortgage broker, we partner with multiple lenders across California, Washington, Oregon and Colorado. We’re committed to securing the best mortgage rate and the best loan based on your profile. Tenancy in common financing is a modern solution that can help you build your wealth today through property ownership.
Qualifying for a mortgage isn’t always a straightforward process and we understand that your financial picture might not fit a simple profile. Tenancy in common offers a modern financing solution to help you build your wealth through property ownership.
If you’d like to discuss tenancy in common, I’d love to answer any questions you might have. You can schedule a call or reach me directly at (408) 610-8011.
We work with homeowners throughout California, Oregon, Washington and Colorado. Our goal is to help you reach financial freedom and save money on your mortgage. Getting the best financing for tenants in common is a great solution for many homebuyers. Feel free to schedule an appointment today or give me a call. You can reach me directly at (408) 610-8011.