Considering buying a house with a friend, brother or sister? What about your boyfriend, girlfriend or partner? You’re not alone. A growing number of unmarried people are buying homes with their relatives or partners.
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A recent study found that 25 percent of now-married couples between the ages of 18 and 34 purchased their first homes together before they finalized their marriages.
Other homebuyers simply never plan to marry. This includes siblings who purchase condos together or parents and children who pool their resources to buy a home together. It also includes friends who buy homes together, either to live in or as an investment property.
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Buying a home with someone who isn’t a spouse can be a positive move. But it can also be a financial disaster. The key to success? Avoid these three potential pitfalls.
1. Not Planning Ahead
It’s important to plan before you purchase a home.
Here’s why: If you and your spouse split up, there is already a legal framework in place — the divorce process — that will help you determine what happens to the home you own together. If you and a friend stop talking to each other or you and your sister decide to go your separate ways, there isn’t that process to guide you through.
And what if your brother decides he wants to sell the home you both own and you would rather hang onto the property? How do you resolve this situation? Again, it comes down to planning.
2. Not Having a Contract
It’s important to discuss what you plan to do with the home and even a few plausible scenarios, like if one of you needs the money the sale of the home would bring but the other doesn’t. It’s also a good idea to get some of this down in writing.
A legal document that explains how the homebuying arrangement will work can protect everyone involved. It’s a good idea to get some help in creating this document, like sitting down with a real estate attorney who can hammer out the details.
3. Not Being Specific Enough in Your Contract
It’s important for the written contract to describe how buyers will handle maintenance and necessary repairs. It should spell out how and when they’ll sell the home they’ve bought, and will list how potential rental incomes or sale proceeds will be split up.
Perhaps most importantly, the contract should specify what happens when one owner no longer wants to own the property. A signed contract up front with a spelled-out exit strategy for all of a property’s owners can help avoid more expensive and time-consuming legal actions later.
It’s also important for all owners to put their names on a property’s title. Doing so ensures that everyone who owns the home is considered a legal owner. Those owners whose names aren’t on a property’s title might find themselves losing out if an ownership dispute ends up in court.
It Could Work
There are plenty of benefits to buying a home with someone who is not your spouse. By pooling your income with another partner, you might be able to buy a bigger home or move into a more desirable neighborhood. If you want an investment property, buying a home with a non-spouse partner could deliver profits for both you and your fellow owners.
But it’s a good idea to go into the process prepared for the very real possibility that your relationship with your homebuying partners might go bad. You might think that you and your best friend, sibling or parent will never have a falling out, but it’s best to be prepared.
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