Co-buying a property means two individuals such as friends purchasing a property and co-signing an agreement together, commonly referred to as tenants in common or joint-tenancy. First time home buyers can use this option as an opportunity to decrease the cost associated with their first home purchase as it significantly reduces the mortgage payments and the down payment. As with any agreement, there are certain aspects you should consider when moving ahead, see the guide below for four ways to avoid being in conflicts down the road with your joint tenant or tenant in common.
#1 Consider Both Business and Friendship
Take a good look at how you and your potential co-owner size up in terms of finances and dependability. What does their credit score look like, is it comparable to yours and can you trust this individual based on this information. Next take a look at their income levels, this information may be sensitive and that’s understandable to be reluctant to give this information away. You have to consider the seriousness of the situation however, this information needs to be fully understood so that both parties can make an informed business and life decision. Remember that this is not just about friendship, this is an investment for both parties, make sure both of you feel the same way.
#2 Getting a Loan
Once you have your co-owner selected, you may wish to head to the bank or a mortgage broker. Ensuring that you can get a good mortgage broker with desirable rates will secure you for the best possible position in the future. Note that buyers with a less than 20% down payment are considered high-ratio mortgages and may be subject to a higher interest rate, or you may be approved for much less than the desired budget of the home you plan to purchase. The benefit of co-ownership however, is the ability to pool your finances and afford the 20% down payment with a much lower interest rate.
#3 Do Up the Contracts
When buying a property with another person, always prepare for the worst and hope for the best. It is important that after securing a loan, you go over what happens with the property when one wants to sell, or even the possibility of buying out the other person. Make sure you have a contract in place that outlines all the details. Mortgage payments, defaults, if someone loses a job, upgrades to the home, maintenance of the property and housework. These are only some of the contract obligations, it is best to sit down with a lawyer and discuss the potential issues regarding the contract.
#4 Know What Happens at the End
Know that the contract regarding the co-ownership of the property may not last forever. Make sure that you have a time frame in mind to give both yourself and the co-owner an understanding of how long you want to keep this property as well as what happens when you go to sell.
While not a popular option in the London area, co-buying offers a number of opportunities for first time buyers who are attempting to purchase a property and build equity as opposed to renting. Whether looking to buy your first home or your dream home, we would love to help you through that process. Give us a call at 519.663.9411 or email us at firstname.lastname@example.org and see how we can help you in your home buying process.