When you think of more than one name on a mortgage application, you probably assume it’s a married couple. However, there are lots of other people who enter into buying a home together – siblings, parents and their children, extended family, non-married couples, and even friends. This is known in the industry as a joint mortgage.
On the positive side, sharing the burden of a home loan can make homeownership accessible to those for whom it might not be possible alone. However, making a big commitment as complex as sharing a home and a mortgage means you have a long-standing financial obligation to each other, so you want to be certain that you are fully prepared before entering a joint mortgage.
We connected with Mike Venable, head of underwriting at TD Bank for his thoughts on home sharing to help you decide if it’s an option worth exploring. Plus, we will outline some best practices when learning how to buy a house with multiple owners.
Why is co-ownership on the rise?
Co-ownership is rising in popularity as budgets are stretched thin across the country. Co-buyers can include siblings, parents with children, unmarried partners, friends, and more.
Given rising home prices, some would-be home buyers have to get creative to make their homeownership dreams a reality. And co-ownership is becoming a viable option for many.
According to CoBuy, an estimated 25% of all homes sold in the U.S. in 2021 were co-buyers. The growing trend makes sense for the housing budgets of many.
How to buy a house with multiple owners
Each co-owner will be on the title when you co-buy a home with someone. Additionally, all of the co-owners will likely have their names on the mortgage.
Here are two different ways that co-ownership can work.
Tenancy in common
Tenancy in common will result in unequal property ownership. Instead of splitting the equity equally, tenancy in common allocates homeownership percentages based on how much each individual invests in the property.
Each individual has an equal right to use the property. But all parties must agree to sell the home. If sold, the proceeds will be divided based on the percentages.
Importantly, a co-owner must get permission from the other owners to sell their share of the property. If one of the co-owners passes away, their share of the property can be left to any beneficiary they choose.
Joint tenancy divides the ownership shares equally. The amount that a co-owner invests will not have an impact on their designated shares.
A key detail is that you cannot choose a beneficiary for your share of the property. Instead, the surviving co-owners will divide your share equally among themselves.
But if you want to sell your share, you won’t have to ask for permission to do so.
Pros of co-owning a home
Venable’s quick take is that more borrowers make loan qualification easier.
“With more challenging lender standards when it comes to credit score and debt to income ratio, it’s easier to qualify if you bring in more income to offset the debt,” he explains.
There’s also the perk of getting to claim mortgage interest on your taxes, but keep in mind, you’ll have to split the total amount with your co-buyers.
Cons of co-owning a home
While joint ownership of a home is a great idea in theory, it only works if all parties are on board and willing to keep up with the financial commitments. If not, it will cause headaches and disagreements down the road, which may need to be remedied with attorneys or through the courts.
“It’s much more difficult to walk away from a mortgage when you have more than one borrower,” says Venable. One person can try buying the other out and then try to refinance, but either individual might not be able to qualify on his or her own.
The big issue is if one of the homeowners suddenly can’t or won’t pay his or her share of the mortgage payment. That will ultimately affect all parties and could result in damage to your credit score or even foreclosure. “You may be responsible for only part of the mortgage, but if your partner doesn’t pay, there is potential credit damage for you. Ultimately, any delinquencies would be hitting both of you, not just one,” says Venable.
In short, pursuing a joint mortgage to buy a house with your parents, friends, or other family members can be a great idea if all parties involved are equally responsible and financially prepared. Be sure the people you buy with are people you trust.
How to take title
Also, consider what happens in the unlikely event that one owner passes away. That can wrap the surviving owner in legal spiderwebs.
As Realtor.com explains, when each co-owner has an equal share of the home, the official status is known as “joint tenants with right of survivorship” (JTWROS). That’s another way of saying that title is held between all co-owners. If a co-owner dies, their share goes to the other owners.
In a “tenants in common” (TIC) agreement, each co-owner can pass along their ownership through a will, meaning the remaining tenants might end up sharing the home with someone they never intended to. This is an area for which you should consider getting legal advice from a real estate attorney.
Joint ownership examples
There are no lending rules against purchasing a home with someone who is not your spouse or family. Some common relationships that co-own a house together are as follows.
- An adult child buying with his or her father, mother, or step-parent
- Co-ownership with a fiancé, fiancée, boyfriend, girlfriend, or partner
- Two individuals owning an investment property together
- Two married couples buying a rental property
- Two or more families buying a large home to live in together
These are just a few of the possible scenarios. All of these and more are permitted with current lending rules.
Qualifying for a shared mortgage loan
The process of qualifying for a home loan with another person is much the same as it would be otherwise, says Venable. “We look at every application the same way based on our product guidelines, and we look at the big picture. We factor in credit score; we look at a two-year history of income for both wage and self-employed borrowers, and we look at the debt-to-income ratio,” he explains.
Just keep in mind that lenders will look at both parties’ financial strengths and weaknesses. If one person is qualified but the other is struggling with their finances, it could hurt the first borrower’s chance at qualifying.
For instance, if one co-borrower has a great credit score and the other one has a poor credit score, lenders are going to factor that poor credit score into the equation. They won’t focus solely on the borrower with good credit.
Similarly, if one person has lots of existing debt, that will count against both borrowers’ combined debt-to-income ratio. In that case, it could be harder to qualify.
So while co-borrowing often makes it easier to qualify for a mortgage, it can also have drawbacks. It’s important to consider both borrowers’ full financial picture before applying.
Ownership agreement for co-owners
Although Venable is not in the business of giving legal advice, he’s seen those who go into home-sharing situations have agreements drawn up by a lawyer so it’s specifically laid out as to who is responsible for what.
For example, there could be different percentages of ownership, and therefore, that might affect how the loan is paid back. In the case of an unmarried couple that breaks up, how will that work? In other words, it’s a good idea to really have a plan in place that’s outlined in writing before you move forward with such a transaction.
Consider hiring the services of an attorney to help you lay the framework for the rules surrounding your joint mortgage.
Co-ownership mortgage loan programs
In home-sharing situations, Venable says most borrowers seek fixed-rate conforming loans. “Most people like the longer-term stability over time, especially now because rates are so low,” he says. In some situations in which the parties know they don’t plan to stay in the home for a long time, they might choose an adjustable-rate mortgage for five, seven, or 10 years.
Specialty loans like the VA Loan program wouldn’t work since those are geared toward active military and/or veterans and their spouses. And FHA is mostly used by married couples as opposed to non-married borrowers, says Venable.
All in all, home-sharing offers an opportunity for many folks to stop paying rent and become a part-owners of a home. “Just make sure there’s a trust factor and an understanding of expectations,” says Venable. As long as you’re comfortable with your co-owners, buying a house jointly with parents, friends, or your spouse could very well get you into your dream home a lot sooner than if you were on your own.
What type of loan is best for co-ownership?
Not all loan types are equally suited for co-ownership. In most cases, a conventional loan will be the most convenient option.
However, the Fannie Mae Desktop Underwriter, an automated underwriting system, only allows up to four borrowers for conventional. With that, you might have to limit the number of borrowers or seek out a lender willing to work with you.
Take some time to weigh the options with your fellow co-owners.
Tips for buying a home with multiple owners
Here are some tips on how to buy a house with multiple owners.
Talk to a real estate attorney
Before jumping into co-ownership, talking to a real estate attorney is a smart move. You and your co-borrowers can work out potential legal issues ahead of time to avoid a messy situation later on.
Specifically, you should discuss title options, division of shares, and the process to pursue if an owner wants to leave the arrangement. Additionally, you may want to discuss what would happen if someone could not keep up their end of the bargain.
Sort out ongoing financial responsibilities before closing
Discuss with your co-borrowers the management of ongoing financial responsibilities. Consider what bills need to be split and what to do if someone has a cash flow issue.
Working through these details ahead of time can save you time and stress later.
Buy a house with multiple owners FAQ
Can I get a joint mortgage with my parents?
Yes. In fact, individuals buying a house jointly with their parents is one of the most common co-owned mortgage pairings out there. Keep in mind that doing so may require adjustments in communication regarding financial obligations, and even lifestyle if you choose to co-inhabit the house.
Can my mom and I buy a house together?
Absolutely. You can co-finance a house through a lender with one or both parents. Under current lending regulations, you can even jointly buy a house with the support of someone who is neither a family member nor a spouse.
How do you buy a house with two owners?
The process of purchasing a house with two owners begins with qualifying for a joint home loan. The process is similar to applying for an individual loan. One fundamental difference is that, in a joint mortgage application, both applicants’ incomes and assets are considered in combination with one another. This can be beneficial if neither income alone meets pre-qualifications for the mortgage you are pursuing. However, if your partner has a bad credit history or lots of debt, this can negatively affect your personal standings.
Can two families buy a house together?
Yes. Many lenders allow two families to combine their respective incomes in order to jointly purchase a house. Both households will need to meet the minimum qualifying loan requirements, which may vary from lender to lender. Lenders may also require both families to hold equal ownership rights of the house. Matters such as property use, expenses, and title are best negotiated in advance through the mediation of attorneys.
Can I borrow money from my parents to buy a house?
Many first-time home buyers borrow funds from their parents. It is what is commonly known as a private home loan, a private mortgage, or an intra-family mortgage. Choosing to borrow from your parents can confer certain advantages, such as zero prequalifications, low-interest rates, the flexibility of payment, and even tax deductions. Nonetheless, before asking for a loan, it is wise to come prepared, at the very least, with exact amounts, tentative payment schedules, and the specifics of your chosen property.
Can you buy a house with multiple owners?
Yes, many lenders will allow multiple owners to buy a home together. However, the combination of borrowers must be able to meet the financial requirements of the lender.
Can you have 3 owners of a house?
Yes, many lenders are willing to let three owners buy a house together. But the borrowers will need to meet the financial requirements of the lender.
How do you split ownership of a house?
In most cases, you’ll choose to split ownership through a tenancy in common agreement or a joint tenancy agreement.
With a tenancy in common arrangement, the shares owned by each owner will vary based on their initial investment. With a joint tenancy agreement, each owner will have an equal share, regardless of their initial investment.
How many co-owners can there be for a house?
Technically, there is no limit to the number of co-owners for a house. But many lenders will cap the number of borrowers at two families or four individuals.
If you want to pursue co-ownership with more individuals, consider talking to lenders to find a good fit.
Can a property be registered in 3 names?
A house can be registered in more than one name. Although some lenders will impose a limit on the number of names, many will allow three borrowers to co-borrow. And with that, the property deed will have three names on it.
Can 3 friends buy a house together?
Yes, three friends can buy a house together. The friends can pool their resources to meet the lender’s requirements. Depending on your situation, co-buying with friends could be a smart way to access more affordable housing.
How do you buy a house with multiple family members?
Multiple family members can buy a house together as co-borrowers.
With that, each family member will be listed on the mortgage application. You can choose to apply for a co-ownership mortgage with your siblings, adult children, or parents. As housing becomes more expensive, more families choose to pursue a co-ownership arrangement with each other.
Even though you are family, it is still a good idea to work out the financial responsibilities ahead of time. You don’t want to allow the financial strain of co-ownership to affect your family ties.
Can you have 3 people on a mortgage?
Yes, you can have 3 people on one mortgage.
The co-borrowers can pool their resources to meet the lender’s requirements. With that, it may be easier to qualify for the loan.