CLARK: Buying a home together

Some first-time buyers, unmarried couples and friends seeking relief from rising rents are looking to buy a home together in increasing numbers. They are combining their financial resources to qualify for a mortgage. This may reduce housing expenses, offer the building of equity and a mortgage interest tax deduction. However, joint-ownership may present problems if the relationship of the buyers becomes tense or problematic. Planning for divisive developments is strongly recommended.

Prior to applying for a mortgage, co-borrowers should disclose to one another their income, credit and debt positions. A mortgage underwriter will determine what type of mortgage interest rate they are qualified to get based on the lower of their credit scores. This consideration for eligibility is the same for married couples — the lower credit score of the two parties is the basis.

Another issue to consider is if one of the borrowers is unable to pay the mortgage due to i.e. illness or loss of job etc., is the other able to make up their portion? If the other party cannot pay the mortgage and it goes into default, both buyers’ credit scores are adversely affected.

Plans should also be made as to how insurance, home repairs and other expenses for the home are to be handled in a co-ownership agreement. If not agreed-upon in advance, this could be a cause for contention.

Most importantly, the agreement should specify how the title of the home will be held. Typically, buyers who are not married, own as “tenants in common” – their ownership share will pass on to their estate when they die instead of the surviving owner. Married couples typically have “joint tenancy”. This is a type of shared ownership of property where each owner has an undivided interest in the property. A right of survivorship is thereby created so that when one owner dies, the other owners assume the deceased owner’s interest.

A co-ownership agreement can also protect against one buyer forcing the sale of the home against the other’s wishes by including a right of first refusal. A right of first refusal gives the other owner an opportunity to buy out the one wishing to sell. The agreement can also state that a sale is necessary should neither party pay to maintain the home. The agreement should clearly state conditions and actions should a situation of concern arise.

Legal counsel should be sought to prepare an agreement that stipulates what is to be done to address any potential issues. Although each buyer may be responsible for only 50% of the mortgage, lenders view each owner as liable for the entire debt. If one buyer decides to purchase another property while retaining the first mortgage, the first mortgage will be considered in its entirety as a debt obligation. If one of the parties chooses to move on, it could be complicated and stressful unless provisions in an agreement allow for such circumstances.

Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected]

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