Home
buyers come in all shapes and sizes. A home
buyer could be a single person. Or a married couple...Or an unmarried couple. Maybe two friends. Two siblings. Parent and child. You get the idea. But let's be real. There is a lot to consider when purchasing a property, and potentially a lot more to discuss when you are
purchasing a home with someone who is not your spouse.
When buying a home with a spouse, your finances are usually at least somewhat co-mingled. California is a community property state, so a
home purchased likely belongs to both of you equally no matter who brings what to the table financially.
But hey, it's 2019, and not every deeply committed couple gets married. Or perhaps two BFF's decide to purchase a home to be able to afford a nicer or larger place than one could afford individually. Or parent and adult child decide to jointly
buy a home so grandma can watch the kids while adult child is working. I have worked with
buyers in all of these scenarios and more.
But let's talk about the ramifications of making a large joint purchase for a minute. A home is a large asset to own jointly. If you are planning to
buy a home with someone, you should have a pretty candid discussion the other person about your intended mutual financial arrangements and obligations
owning a home together. And, if you were to separate, you should talk about how you would divest yourselves from it.
The road to hell is paved with good intentions. Couples who are deeply committed do separate sometimes. BFFs maybe eventually get married and want to move somewhere else with their new spouse. Or grandma gets tired of constantly having the grandkids around and wants a place of her own.
It can be a tough conversation to have.
Buying a home is exciting, and this conversation can be a real buzzkill. It's as exciting of a conversation to have as, for example, creating a prenuptial agreement. But it is a really necessary conversation to have so everyone has the same expectations.
You should be thinking about this stuff and get mutual clarity on:
-Who is making what percentage of the downpayment?
-Who is paying what percentage of closing costs?
-Who will make what percentage of the monthly mortgage payment, utilities, HOA dues, property taxes, insurance, etc.
-Will this be a 50-50 ownership? Or some other percentage? Perhaps you may not want a 50-50 ownership if one of you will carry more of the financial load.
-How will you hold title to the property? (Married couples usually are "Joint Tenants" where essentially both owners collectively own 100% of the real property, and in the event of the death of one owner, the surviving owner retains 100% ownership. It might make sense to explore other forms of vesting, like for example "Tenancy in Common" where each owner owns an individual interest in the property. That interest could be sold on its own. There is also no right of survivorship, such that one interest does not automatically go to the other owner upon death and could be bequeathed to a beneficiary.) You should consult a CPA or an attorney on that one.
-Who will pay for repairs or improvements to the property?
-How will you decide who gets to deduct
mortgage interest,
property taxes, and other house-related deductible expenses on your state and federal income taxes (if applicable)? If you are unmarried, each owner will be filing a separate tax return.
-And most unexcitingly, if you were to separate and want to
sell the property, would you split the net proceeds down the middle? Or would you want to first recoup your downpayment, closing costs, repair costs, and then split it? Or if you have individual ownership interests in the property, and one wants to sell his/her interest, should the remaining owner have any input as to who the new co-owner would be?
It's not exactly fun to discuss the termination of anything (especially a relationship or friendship), but it is also best to be on the same page now. It might be worth it to even draft an agreement relating to this sort of thing...
I know, buzzkill. But if you don't feel comfortable enough to have this conversation before making your purchase, perhaps you should rethink your purchase with your potentially joint co-owner.
As an
agent, I see these scenarios play out all the time. Everyone is excited and happy to make the
purchase. But then when things go south, it is a tense situation and nobody is on the same page when it is time to
sell the property. Things are usually a little more straight-forward when a married couple separates (usually joint tenants, usually proceeds of a sale are split down the middle, if spouses do not agree usually divorce attorneys or judge help to steer the decision-making), however when people are unmarried it can get messy quickly.
Save yourself the trouble and think about these things in advance.
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