Should You Co Owning a House with Your Parents?

By: ROS Team

When you buy a home with others, be it your partner or parents, you become legal partners as well. It may affect other aspects of the real estate transaction, such as financing or how to divvy up the proceeds when a property is sold.

There are multiple ways to enter into a legal partnership in real estate. Here is a brief overview of the different types of shared housing arrangements to help you determine which may work best for you.

Co Owning a House with Parents

There are two ways you can co-own a house with your parents:

• Tenancy in Common (TIC)

In this type of arrangement, you own a property with undivided shares. For example, if you own an apartment with your parents as TICs, you each own a share of the whole building even though you may all live in and maintain separate portions of the apartment unit. TIC is most common in multi-residential buildings like duplexes or triplexes.

If you own a property’s title as a TIC with someone, all of the co-owners are supposed to enter into a written agreement that outlines each person’s rights and responsibilities as it relates to the property. In a multi-unit property, you may have rights and responsibilities of a separate unit which gives you the feeling of separate ownership.

For mortgages, TICs may finance their property using a single lender. However, each owner must qualify for the loan separately. Many lenders have started offering fractional mortgages for TIC properties so that it’s easier to divide the property into separate units. For a fractional mortgage, co-owners have to sign a separate promissory note and deed of trust.

If a partner in the TIC dies, their shares are automatically transferred to his or her heirs or a beneficiary. Therefore, it is always advised to have a current will in place when you co-own a property as a TIC.

• Joint Tenancy

Joint tenancy is a type of ownership that is based on the right of survivorship. But, unlike in a TIC arrangement, if one partner dies, their shares are automatically transferred to the other owners.

Joint tenancy is most common when people seek to share ownership with parents or partners although it’s also used among unrelated partners as well. All co-owners have equal interests in the property, and the property is often financed under a single shared mortgage.

Benefits of Co Owning Property with Parents

• Property is expensive, and the real estate market is competitive. So, co-owing with parents is maybe the best chance that young adults can realize their dream of homeownership.
• When you use the equity that your parents have and share repayments with them. You may be able to buy a more expensive home in the future.
• It can sometimes take years to save enough money for a down payment. If you co-own property, you may be able to own a home sooner.
• By teaming up with your parents, you will borrow less money for a home loan, which means lower mortgage payments.

Disadvantages of Co Owning Property with Parents

• You might be on the same page with your parents now, but you never know how things will play out a few years down the line. Things may get messy when one party is ready to sell and the other party is not.
• Any major financial changes will impact all parties who have a share in the property’s ownership.
• If you’re thinking of buying another home with your parents in the future, your current loan will significantly reduce your buying power.

Tips for Co Owning a House with Your Parents

While there are both advantages and disadvantages to owning a home with parents. Here are some tips to help minimize the risk of any problems occurring:

• Regardless of who you are entering into a partnership or co-owning relationship with, make sure you consult with a financial expert to help ensure everyone’s aware of what they are getting into and how to remain financially protected.
• Draft a co-ownership agreement with your parents. It will help protect everyone’s rights as they relate to the shared property.
• Have an exit strategy–you never know if/when things will take a downturn or something happens unexpectedly. Before signing any agreements, you and your parents should have a strategy for what to do should some want to sell.
• If you purchased a home with a tenants-in-common ownership arrangement, have a will and include what should happen to your shares after your death.

Final Words:

You can never rule out the probability of having disputes among co-owners, even they are your parents. Sometimes circumstances reach a point where one party decides to part ways. It’s not always financially feasible for either party to cut all ties and run. Therefore, put measures in place that address what happens should someone want to leave the partnership.