Buying a house with a sibling sounds like a more economical choice than buying a home alone, but there are things to keep in mind before jumping right in. A lot of planning and consideration is needed to make this financial decision go well between siblings.
Should You Buy a Home With a Sibling?
Buying a home with a sibling sure does sound appealing when you’re both short on money. However, there’s one way for your housing arrangement to go wrong: what if one of you wants to back out? Things are going to be way different from a divorce scenario where dividing assets (in this case, shared residence) are concerned.
So, is buying a home with a sibling a good idea at all? The following are things you should consider when co-owning a house with a sibling.
Plan Ahead With a Contract
All home buyers should have their names on the property title, which serves as official documentation of the legal owners. It is incredibly essential so that no one loses out if ever an ownership dispute arises in court.
A real estate attorney is the best form of future-proofing you have here. These professionals are well-equipped for dealing with written contracts that officially state how the homeowners would pay for home repairs and maintenance, how they’ll sell the property, how potential rental profits would be split, and what happens when one person decides to back out of the ownership.
A contract is important in sealing the deal and establishing each party’s right as a property owner.
Partition Action and Planning Ahead
When married couples choose to end their marriage, said couples would have to decide what happens to their property. For non-married homeowners, the situation is different – it’s a longer, more expensive process for everyone involved.
Non-married homeowners have to file a formal, civil lawsuit that forces the other party to either buy their interest or sell the home when they don’t want the joint ownership anymore. It’s called a partition action, and it makes things more complicated in times of major life changes.
While this process can be daunting, there’s always a way to prevent all of this: with the signed contract mentioned earlier. Said contract should have a fall back plan to save everyone the hassle. It’s always important to plan and be specific with a legal framework!
Co-Ownership Legal Options
In buying a home with a sibling, working with a lawyer would make things much easier. There are multiple ways to go co-ownership of a house with a sibling, based on the American Bar Association.
Tenancy in common
You can split the house in whatever way convenient for both parties. For example: if one of you provides 60% of the downpayment, that person would own 60% of the property. But, if one owner passes away, it goes not to the surviving party, but the late owner’s heirs.
Joint tenancy with rights of survivorship
With this one, both owners take an equal share of the property. However, if one of them passes away, the living owner gets the property all to themselves automatically.
Advantages of Buying a House with a Sibling
Here are some reasons why buying a house with your brother or sister is a good idea:
Ease of loan qualification
When it comes to debt-to-income ratio and credit score, lenders have quite a demanding standard. Therefore, it becomes much easier to meet those high standards if there’s more aggregate income.
Aside from that, home expenses such as a mortgage, utilities, home renovation, and maintenance would cut less on your budget since you don’t have to shoulder it alone.
You can also claim mortgage interest on your taxes, although you have to partition the amount with your co-borrowers.
Ability to afford a more expensive home
If you split the expenses with another person, you can now buy the pricier, usually bigger and better property on the market.
A better home is a huge investment, and affording is now possible if you pool your income together. There are lots of benefits to buying a pricier home with a sibling: better location, better ZIP code, upgrades, security, better amenities, and more.
Splitting the bills instead of paying for it alone
This is the number one reason why anyone would even consider sharing a home with their siblings. Utility bills are so expensive, and having the option to split it in half is what makes co-ownership so attractive. In the event of home maintenance, renovation, or any other extra resource hogs like that, the burden of home upkeep won’t seem heavy.
Disadvantages of Buying a House with a Sibling
There are a few downsides to purchasing a home with a sibling. Can you bear with these in the long run?
Limited personal space
There comes a time when the person you spend a lot of time gets on your nerves. It’s up to you to consider if the convenience of splitting the bill outweighs the inconvenience of living with someone you don’t like. Or better yet, make it a point to have better communication so you can live under one roof in harmony.
More difficult to cancel the mortgage
When there are multiple borrowers tied to the same mortgage, it’s harder to deal with the said mortgage if one wants to back out.
The whole thing becomes a mess once a co-owner doesn’t want to keep up with their financial commitment anymore. This situation will affect everyone involved, and there’s a possibility to endure credit damage on your personal finances.
Co-owning a home with a sibling can be wonderful, but only if you trust everyone to be financially responsible in the long run.
The following are some common questions about co-ownership of a home.
Are there co-ownership mortgage loan programs?
Fixed-rate conforming loans are the most sought-after due to the stability and the fact that rates are low nowadays.
However, sometimes siblings only plan to temporarily stay in a home, in which case an adjustable-rate mortgage for 5, 7, or 10 years would be more convenient.
VA loans wouldn’t be applicable in this situation because they are for the military, veterans, and spouses. Meanwhile, FHA loans wouldn’t be possible either since married couples use them.
Home-sharing with siblings is still a great decision overall since both owners would stop paying rent and instead be co-owners of a home.
What are some joint ownership examples?
No lending rules exist against the purchase of a home with a sibling. Aside from buying a house with your sibling, here are some more scenarios people find themselves in when it comes to homeownership: co-ownership of parent and child, two or more families living in one home, living with a partner, a married couple buying their second home, and two people co-owning an investment property.
Can I buy a home with my mother instead of my brother or sister?
Yes. You can even buy a house with both of your parents. There’s also the option of purchasing a home with the help of someone who isn’t a family member or spouse. Many people are choosing to buy a home with a friend too!
Can I avail of a joint mortgage with parents?
Yes. It’s one of the most common co-owned mortgage arrangements because it is easier on the budget for everyone involved in the home buying.
How do I buy a house with two owners?
Qualifying for a joint home loan is the first requirement. You’ll go through the same process you would go with an individual loan, with the only difference being that the incomes and assets of both applicants would be considered one. That’s not such a good thing if you have good credit while the other person has a bad credit history and lots of debt.
Is buying a house with a sibling the right choice to make? If the home purchase offers a lot of convenience to everyone involved, then yes, it is. A few things to consider when buying a house with a sibling are financial responsibility, healthy relationships, and cooperation.