First Time Home Buyer

Recently it has become a common question; ‘should my best friend and I buy our first home together to share and be able to afford more home than on our own’. Immediately many would think this to be a great solution without any further consideration; however, there are serious considerations that have to be made before making such a significant decision. Among these considerations are: legal ownership, mortgage management and future goals. A transaction as large as a house is always a big decision and requires long-term commitment whether alone, in a family or in a mutual partnership. Open discussion about all questions that come up is advisable as well as a plan of action for things that may come up. What will the situation be if a partner wants out due to marriage? What happens if there is an irrevocable end to the friendship? What will the course of action be if one partner faces dire financial circumstances? Co-ownership can be affected by all of these situations. This does not mean it is not a viable option with all things contractually worked out.

Legal Ownership: Most states consider the legal ownership of a partnership on this scale as TIC, tenancy-in-common. TIC is given the freedom to customize their shared ownership agreement to their desires and needs. Generally details of the division are writ into the agreement; most commonly on a 50/50 percentage basis. The agreement can state that the owners have first opportunity to purchase the other owner’s percentage should one choose to leave or that the home would be put up for sale and then divided by percentage. This is really the easy part of TIC, more difficult agreements are based on the division of the home maintenance, utility costs, upkeep and other home related decisions. All of these considerations need to be worked out in the TIC agreement before obtaining the mortgage.

Mortgage Management: In a tenancy-in-common you have two mortgage options available; all intended owners can apply for one mortgage loan together. In this situation, any one person defaults on the loan all owners are equally affected. The owner who faithfully pays his or her share of the mortgage can end up with credit problems if the other owner does not pay his or her share as responsibly. This could even lead to the entire home being foreclosed on. The second option is to apply for a fractional ownership loan, which is also called a TIC loan. Each intended owner would apply for and commit to a mortgage separately and each mortgage would be secured for their personal share of the property. With this mortgage type one owner’s problems do not affect the other’s credit or ownership.

Fractional loans are hard to find and harder yet to qualify for. Educating yourselves completely and having a plan of action for every step of the way will help you in your endeavor. Although more difficult a TIC is not an impossibility and is a viable way to become a first time homeowner.