Home affordability has become an increasingly challenging issue as both home prices and interest rates continue to climb, creating a more complex landscape for potential buyers. Rising mortgage rates significantly increase monthly payments, making it harder for many to qualify for or afford a home. Meanwhile, home prices remain stubbornly high in many markets, with no clear signs of a substantial decline on the horizon. This combination places aspiring homeowners in a difficult position, as they face limited inventory, competitive bidding, and tighter budgets. For many, the dream of homeownership now requires more strategic planning and flexibility than ever before.
If you’re a single adult struggling to find an affordable home, partnering with someone else to buy a property could be a viable solution. In this article, we’ll explore your options and discuss the pros and cons of co-buying a home as single individuals.
Who can go on a loan together?
Anyone with a stable financial profile can apply for a home loan together, whether married, related, or simply friends or business partners. Two people do not need to be married to qualify for a joint mortgage, as lenders evaluate applicants based on their combined financial strength, including income, credit scores, and debt-to-income ratios. Co-buying a home often looks different from traditional purchases, as it requires clear agreements on ownership percentages, financial responsibilities, and an exit strategy if one party decides to sell or move. There are many ways buying a home with another individual can look, and we break that down more in-depth in our article about who can go on a loan together.
When should you consider buying a home with another single person?
You could consider finding a partner to buy a home with if you have concerns about affording a home based on your income alone or if you are uncomfortable with the monthly payments on the home you would like to purchase. You can combine both of your incomes into one mortgage application to help with qualification. It will also help with the monthly bills and shared expenses. You can do this to ease home affordability or simply because you and your copart wish to purchase an investment property.
When two single individuals decide to buy a house together, applying for a mortgage can differ significantly from that of a traditional couple or single buyer. Lenders will typically evaluate both parties’ creditworthiness, income, and debt-to-income (DTI) ratios, which can impact the loan amount and interest rate offered. On the one hand, combining two incomes can be advantageous, allowing for a higher loan amount and access to better properties. However, one person’s financial profile weaknesses, such as a low credit score or high debt, may negatively affect the mortgage terms or approval process.
Pros of Buying a House Together
One of the most significant benefits of buying a house with another person is the ability to share financial responsibilities. Pooling resources often makes homeownership more accessible, as shared down payments and monthly mortgage payments reduce individual burdens. Additionally, joint ownership allows for a broader range of properties to choose from, as two incomes might qualify for a larger loan amount than a single income.
Another advantage is shared responsibility for maintenance, utilities, and other home-related costs, which can make long-term ownership more affordable. For many, this arrangement also provides emotional and logistical support, as the tasks and challenges of homeownership are easier to manage with a partner.
Cons and Considerations
The mortgage application process can be more complex. If one buyer has a significantly lower credit score, it may impact the interest rate or lead to additional scrutiny from lenders. The person with the lower credit score will drive your rate. If one party struggles to keep up with payments, both individuals’ credit scores could be affected, potentially causing long-term financial strain.
Legal Considerations
Co-buying a property can lead to complications if one party decides to move, encounters financial difficulties, or wants to sell their share of the home. Legal agreements outlining what happens in such scenarios are crucial to prevent disputes. Ownership percentages, responsibilities, and exit strategies should be clearly defined in a co-ownership agreement drawn up by a lawyer.
You will also need to decide how to handle the legal issues associated with vesting the title. Vesting on a home title refers to how ownership of a property is legally held, including the rights and responsibilities associated with that ownership. It determines how the property can be transferred, inherited, or divided if multiple parties are involved. Common vesting options include sole ownership, joint tenancy, tenancy in common, and community property (in certain states). Each type of vesting has implications for taxes, inheritance, and the resolution of disputes, so it’s essential to choose the appropriate option based on individual circumstances and goals.
Will you be on title jointly or tenants in common? Joint Title means you both own 100% of the property together. In the case of your death, your co-owner becomes the sole owner of all the property. Tenants in Common means that you each own 50% of the property, and your heirs inherit your interest in the property. If both buyers are unrelated, then you should be vested on title as tenants in common.
After some time of living in the home, one person will most likely want to leave. Someone will want to move for work, for a relationship, or decide it’s just time to move on. To compensate the departing party, the remaining party will most likely need to refinance the mortgage into the remaining party’s name. This is what is commonly referred to as divesting.
While it could be considered cash out to pay off the departing party, it should not be an issue if the transaction is drawn up properly in advance. Cash-out transactions have certain limitations you would want to avoid, so you want to have a solid agreement in place.
In conclusion, home prices are going up and will most likely continue increasing for at least the next ten years. While buying a home with another person can offer financial advantages and make homeownership more accessible, it requires careful planning and clear communication to avoid potential pitfalls. Taking the time to establish legal agreements and evaluate financial readiness will help ensure a smoother co-ownership experience.