Why You Might Need a Co-Ownership Agreement
If you’re one of many unmarried homebuyers ready to buy a home with your partner, there are a few things to know. For one, marrieds and unmarrieds are treated differently when it comes to state laws and taxes, and buying a house together puts you straight in the crosshairs of both. A few things that will help: getting pre-approved for your mortgage and drafting a co-ownership agreement. Read these tips to help you prepare before you make an offer.
Know the pros and cons of buying a home with your partner
We blogged about this recently in our post on buying a house with friends. So check out this recent article to learn everything you need to know about the benefits and drawbacks of co-ownership with a friend, relative, or partner. Here’s a snapshot:
- buying a home together could help you qualify for a better mortgage
- buying a home with your partner could help you buy a home sooner
- together, you can begin to build wealth through home equity
- getting approved can be challenging if one of you has bad credit
- you could risk foreclosure if one of you stops paying the mortgage
Why you need a co-ownership agreement with your partner
One of the best steps you can take is to create a co-ownership agreement with your partner. Having a co-ownership agreement with your partner is one of the best ways to protect yourself, your mortgage, and your relationship down the road.
Owning a house together is just the beginning of long-term financial responsibilities, tax implications, homeowner’s insurance, house repairs, and building home equity together. A co-ownership agreement can help you make important decisions before you say yes to a mortgage.
A few prompts to get you started:
- how would you like to split your home equity? (50/50, 70/30, etc.)
- have you decided who will claim mortgage interest as a deduction?
- who will be responsible for paying property taxes? (and also get the tax deduction)
- how will you manage mortgage payments if your employment changes?
- will you split the cost of homeowner’s insurance?
- who will manage the costs of maintenance and repairs?
- how will you face unpredictable homeownership costs?
- do you have an exit strategy if one of you wants to sell?
- have you made a plan if one of you decides to relocate?
- do you have a homeownership goal if you decide to get married?
It can be helpful to hire an attorney to write up the terms of your co-ownership agreement. Together, you and your partner can create a plan that benefits you both.
Get pre-approved for your mortgage
In addition to drafting a co-ownership agreement, getting pre-approved for your mortgage can protect you during the homebuying process. When you get pre-approved for a mortgage with your partner, you’ll know exactly how much you can afford and when your loan will be funded. This means no stress when you’re shopping or worrying about whether or not the financing will come through when you make an offer.
Be sure to share your financial information with your partner, especially if you manage separate finances. When you apply for a home loan with your partner, the mortgage lender will treat you as co-applicants. You’ll both need to share full financial information, credit reports, bank statements, employment history, income and debts.
Once you start your mortgage application, your mortgage broker will work on your behalf to secure the best mortgage possible! An experienced mortgage broker will discuss your loan options, get the lowest rate possible, and help you push through any obstacles that come up.
Choose the best mortgage structure for the property title
Your property title declares who owns the property. When you buy a house with a partner, there are two common types of ownership, and they each hold unique benefits and disadvantages. Discuss the benefits of each property title structure when you draft your co-ownership agreement.
Tenants in Common: With this title, you can decide how you want to split the equity, and it doesn’t need to be split 50/50. You can also sell your ownership in the home without the permission of the co-owner. On a similar note, you can designate your portion of ownership to a beneficiary if you pass away.
Joint Tenancy: With this title, you and your partner will have equal ownership in the home. Each of you will own 50% equity, and you’ll also be able to borrow against your portion of the equity. One difference worth noting, if one of you dies, the surviving co-owner will automatically own the property in full.
Working with a qualified mortgage broker can help you get the best mortgage. We work with clients at every stage of homeownership. Buying a house with your partner doesn’t need to be confusing and a co-ownership agreement can help keep things on track once you become homeowners. Our goal is to get you the best mortgage and save you money along the way. Give us a call to get started.