When family members buy a home together, they all become co-signers on the mortgage. They can all live together in the same house, but in many cases, it is not required. That means your parents, grandparents, aunts or uncles, or siblings could help you buy a home as a gift to you, or they could help you out as a form of investment for themselves. Whatever the motive, you will all have to qualify for the mortgage, and you will all be liable for making the payments.
The Pros
Buying a home with relatives can make the financial burden much lighter. For example, all parties can contribute part of the down payment, making it easier to get to that magic 20%. Or one borrower (perhaps, the parents) can contribute the entire down payment, making homeownership attainable for a buyer who otherwise couldn’t afford it. Plus, all the buyers can split the monthly payment.
And to qualify for the mortgage, all borrowers’ income and assets are considered, giving you a much stronger application than you might have had alone, especially if there are multiple incomes among the buyers. You’ll likely be approved to buy a more expensive property than you would on your own as well.
The Cons
There can be some drawbacks to sharing a mortgage though. For starters, all co-borrowers credit scores will be counted in the application process, with the lowest score being used for approval. So if your co-buyers score is lower than yours, you may have to pay a higher interest rate or deal with other less favorable loan terms. All buyers’ debt-to-income ratios are also factored in, meaning you will have to disclose all your debts to your family members, and they’ll have to do the same with you.
Plus, both (or all) of you are fully responsible for the repayment. So, if someone stops paying their portion of the mortgage, you will have to come up with the extra money or you all risk losing the house. And even if you make your part of the payment, your credit score will be dinged if your co-buyer is late or misses their share for the month.
It can be more difficult to sell or refinance a shared mortgage, as all parties have to agree before any action can be taken.
Put It in Writing
The best thing to do before buying a home with family members is to draw up a legal contract. This should specify how much of the monthly mortgage payment each co-borrower is agreeing to pay and who will be responsible for paying the taxes and insurance. The document should also layout how utilities are to be paid as well as who will take care of and pay for the home maintenance. Making this document legally binding will help prevent future disputes and difficulties.
Watch these videos to help you get started on your journey to homeownership:
How to Begin the Process of Buying a Home
Overview of the Process of How to Buy a Home
Tips for Shopping Mortgage Rates
Overview of Tips for Shopping Mortgage Rates
Mortgage Application Process
[Explained by a Loan Officer!]