When you co-buy a home in the United States, there are a few things to consider, both pros and cons, before starting a lengthy mortgage process with someone else.
Buying a home is an important milestone in anyone’s life, but doing so is not easy for many. In the United States, if you can’t buy a home on your own, you can with someone else. This is known as a co-purchase. To know if this is an option for you, it is essential that you know the pros and cons of co-buying a house.
A Zillow survey shows that buying a home together or with someone you’re not in a relationship with is more common than you might think. 18% of recent homebuyers bought with a relative or friend, while one in five promising buyers say they intend to. According to the Housing Innovation Collaborative, co-buyers accounted for only about 13% of purchases in 2015.
This method of buying is not for everyone, since co-purchasing a home with someone else has pros and cons, just like any other issue in finance.
Pros of co-buying a house
One of the clearest pros of co-buying a house is what it has to do with mortgages. When there are two buyers, there is two incomes and a greater chance of qualifying for a larger mortgage, making it easier for you to buy properties that on your own might seem impossible on your wallet.
Plus, with median home prices currently still well above $300,000, co-purchasing a home and qualifying for a mortgage might be easier than trying it alone.
In addition, a co-purchase gives you the opportunity to add more funds to the initial payment, since the income of the co-buyers is combined. This is not an infallible rule, because it depends on what each one of you has saved for the down payment. If the down payment is high enough, they could get a lower interest rate, a lower monthly payment, and they could avoid mortgage insurance.
Cons of co-buying a home
The benefits can also be reversed when you try to co-buy a house with someone else. If any of the co-buyers have a lot of debt, irregular income, a low budget or a bad credit score, your mortgage application may be rejected. Applying for a co-mortgage increases the risks for a lender and could mean a more complicated process at a possible higher interest rate.
One of the biggest challenges of co-buying a home is the payments. A mortgage is usually a contract for many years, it is a responsibility that you acquire with someone else for a certain period of time. While the idea of splitting the mortgage and other property costs sounds perfect in an ideal world, it is only if you are both responsible with your parts. The problem: If one of you defaults, the other is still responsible for paying the entire mortgage.
If payments are not made on time and properly, both co-owners will suffer their credit score.
Depending on the type of property that is acquired, it is possible that both co-owners make use of the house. If it is not adapted, you could start having problems about the use of land between you. Also, during the term of the mortgage many things can happen, such as anger between you that could affect your mortgage relationship, or start lawsuits for the sole proprietorship of the house.