Beware of Unequal Contributions When Buying a Home

At a time of record home unaffordability, more people are teaming up with friends and relatives to realize the home ownership dream of buying a home. According to the National Association of Realtors (NAR), more than 75 percent of homes on the market now are too expensive for middle-income buyers. Just five years ago, this same income group could afford half of all available homes.^[1] From 2010 to 2020, the number of homes bought by people with different last names soared by more than 770 percent. This group includes friends, roommates, and unmarried and married couples.^[2] In 2021, the percentage of single-family homes purchased by nonmarried co-buyers was 25 percent, up from 17.4 percent in 2018.^[3] Purchasing a property with other people can help a buyer to lower their individual costs while building equity. However, going in on a house together can also create trouble spots, including survivorship and inheritance issues.

A home is the largest single investment that most people make. When buying a home with another person, the co-owners must decide how to hold the title so that it aligns with their wealth-building and estate planning goals.

Co-Ownership and Home Titles

Co-buying a home with a partner, relative, or friend can reduce the costs of the down payment, mortgage payments, utilities, and other household expenses for each buyer, while allowing them to build home equity. Some co-buyers may not even want to live in the home. Their goal may be to rent it out or flip it for a profit.

Home co-ownership can present problems as well. If one buyer has a bad credit score, it can negatively affect another buyer’s mortgage terms. And if one party cannot meet their financial obligations, the other party could be on the hook for the budget shortfall.

Typically, co-owners are not only listed together on the mortgage loan, but on the home title. Having more than one person on the title raises estate planning issues that may not immediately arise but should be thought about.

Property can be titled in different ways. Common ways of joint ownership titling include tenants in common, joint tenants with right of survivorship, and tenants by the entirety.

• Tenants in common. With this type of title, property shares may or may not be divided equally between owners. It depends on what the deed reflects. Each owner’s share might be equal to their investment in the property or the shares may be divided equally among the owners. However, the co-owners still have equal rights to use all areas of the property. They can also choose who receives their interest when they die; it does not automatically pass to the other owner(s).
• Joint tenants with right of survivorship. Under this arrangement, each owner has an undivided interest in the property. They own the property in equal shares and have the right to use the property however they wish. The right of survivorship means that, when one of the joint owners dies, their property interest passes to the surviving joint owner(s). In Texas, the parties must actually sign an agreement reflecting this; merely listing rights of survivorship on a deed is not enough.
• Tenancy by the entirety. This title option works the same way as joint tenants with Right of Survivorship but is only available to married couples and only in certain states. For example, Florida recognizes this ownership; Texas does not. Tenancy by the entirety also provides valuable creditor protection because property owned in this way is not subject to the creditors of just one spouse (although it may be subject to the claims of a creditor of both spouses).

In states with community property, another type of joint ownership for married couples, co-owned property can be titled with the right of survivorship, but it is not the default and must be designated this way.

Joint Ownership and Estate Planning

Around 60 percent of Americans do not have a will, but the percentage without an estate plan is highest among Millennials (78 percent) and lower among Baby Boomers (58 percent). About two-thirds of Gen Xers do not have a will, while more than 80 percent of those age 72 or older do have a will.^[4]

One of the top reasons cited for failing to address estate planning is a lack of assets to leave to anyone. While this is often a myth—estate planning is advisable no matter how many assets a person has—buying a house instantly changes this calculus.

For most people, a home is their greatest investment and the primary driver of household wealth. Even if somebody co-owns a house, their investment in the property is likely to dwarf their other accounts and property.

Deciding what to do with shares of a jointly-owned property is a major estate planning consideration. And it begins at the time a property is purchased and the title is issued.

When co-buying a house, each owner should understand how it is being titled and make sure the titling matches their estate planning wishes. For example, joint tenancy might make sense for a married couple but be a poor choice for friends or unmarried partners because they give up the right to leave the property to anyone other than the co-owner.

In the latter case, tenancy in common is likely a better option. Each tenant in common has the power to dispose of their property interest however they choose—but only if they indicate their wishes in their estate plan. Otherwise, their share of the property passes according to state law when they die.

For those who already own a house, how the property is titled is no less important to their estate plan. Circumstances change. The original title terms may no longer reflect a person’s current priorities. While changing a joint tenancy may not always be possible or practical, at the very least, a person should know how a home title affects their property rights, the rights of any heirs, and tax obligations.

Get Your Estate Planning House in Order

Choosing how to title a co-owned home, and how this choice fits into your estate plan, depends on the people and property involved, your estate planning goals, and state laws where the property is located. Our estate planning attorney can explain the pros, cons, and consequences of each type of joint ownership to help you decide which one best fits your situation.

Call or contact us today for help getting your estate planning house in order.

[1] US Housing Market Needs More Than 300,000 Affordable Homes for Middle-Income Buyers, Nat’l Ass’n of Realtors (June 8, 2023), https://www.nar.realtor/newsroom/us-housing-market-needs-more-than-300000-affordable-homes-for-middle-income-buyers. (Last visited September 6, 2023)

[2] Zinhle Essamuah, Friends are buying homes together. Here's why., NBC News (Dec. 16, 2021) https://www.nbcnews.com/news/us-news/friends-are-buying-homes-together-rcna9087. (Last visited September 6, 2023)

[3] Ben Luthi, What You Should Know About Co-Owning a House, (Dec. 10, 2021), U.S. News & World Report, https://money.usnews.com/loans/mortgages/articles/what-you-should-know-about-co-owning-a-house. (Last visited September 6, 2023)

[4] Haven’t Done A Will Yet?, AARP (Feb. 24, 2017), https://www.aarp.org/money/investing/info-2017/half-of-adults-do-not-have-wills.html. (Last visited September 6, 2023)