Is Co-Buying Right For You?

For some buyers, purchasing a home independently may be out of reach. Co-buying is an alternative approach to homeownership where two or more individuals purchase the property together and take on a joint mortgage. Get to know the benefits and drawbacks of co-buying before deciding whether it’s right for you.

How Does Co-Buying Work? 

Just like a traditional home purchase, lenders use the buyers’ debt-to-income ratios and credit scores to determine their mortgage eligibility and formulate the terms of their loan. The lender will use the lowest median credit score to determine whether the co-buyers qualify. Before you purchase with a co-buyer, work with a real estate attorney to flesh out the details of the agreement including the distribution of shares, the responsibility of each party for the down payment and subsequent mortgage payments, and the home’s title. There are two main options for taking title to a home with a co-buyer.

Tenancy in Common (TIC)

  • When co-buyers hold a title as tenants in common, shares of the property can be divided equally or unequally. You and a co-buyer can decide to split ownership to reflect the amount invested. However, even if these amounts are unequal, no one individual may claim sole ownership of the property. If a co-buyer dies, their ownership passes along to their designated heir. With Tenancy in Common, a co-owner may sell their shares of the property at any time, without the need for approval from other co-owners.

Joint Tenancy

  • Joint Tenancy—or Joint Tenancy with Right of Survivorship (JTWROS)—requires that all co-buyers hold an equal interest in the property and that they all come into ownership through the same title at the same time. If one co-owner dies, ownership passes to the other co-owner—this is known as Right of Survivorship. Unlike Tenancy in Common, co-owners must receive approval before selling any property shares.

Pros and Cons of Co-Buying

Pros of Co-Buying

For those who don’t have the buying power to purchase a home on their own, co-buying presents an opportunity to combine assets and enter the market. Since lenders will be factoring in both of your incomes, you and your co-buyer will increase your chances of being approved for a mortgage and securing a low interest rate. Both of you will build equity over time as you pay back your joint mortgage. Even after the down payment and mortgage payments, there are a handful of costs that come with being a homeowner. Co-buying allows you to split these costs, saving money on bills, utilities, maintenance costs, and the like.

Cons of Co-Buying

Co-buying a home means you are relinquishing some control over the homeownership costs. At the end of the day, you can’t control your co-buyer’s finances. If a sudden life change leaves them financially unstable, the burden will fall on your shoulders, and you’ll have to make up the difference. Similarly, your credit score could take a hit if your co-buyer is unable to make their mortgage payments, even if you’ve consistently made yours. 

 

Before entering a co-buying agreement, it’s important that you and your co-buyer are on the same page about the terms of ownership and your expectations as joint homeowners. Working closely together will help maintain the health of your finances, and most importantly, your relationship.

For more information on purchasing a home, visit the buying section on our blog:

Blog – Buying

To begin your home buying journey, connect with an experienced Windermere Real Estate agent on our website by clicking on the button below. 

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Understanding Private Mortgage Insurance (PMI)

Buyers are constantly looking for ways to streamline the buying process, whether that’s working with their agent to identify how they can increase their buying power, getting pre-approved, or being as cash-ready as possible. Private Mortgage Insurance (PMI), though it is an additional expense, can be a gateway to homeownership, and for some buyers, may be their only choice to secure the required financing for a home.

 

What is PMI?

Understanding PMI begins with understanding down payments. A down payment is a lump sum payment made by the buyer early on in the process of obtaining a mortgage. The magic number lenders prefer to see paid down is usually twenty percent of the home’s purchase price. If a buyer doesn’t have that secured, the lender will typically require the buyer to purchase Private Mortgage Insurance (PMI), which protects the lender against the possibility of the buyer defaulting on the mortgage.

 

Image Source: Getty Images

 

The Benefits of PMI

Fortunately, it’s not all-or-nothing when it comes to the twenty percent down payment—if you don’t have that amount on-hand, you can still purchase a home. Private Mortgage Insurance creates a pathway to home ownership for buyers who find themselves in this situation. Although PMI can raise the buyer’s monthly costs, it allows them to move in and start building equity immediately. For this reason, PMI may be a saving grace for buyers who are looking to leave their days of renting behind them and become a homeowner.

 

Alternatives to PMI

Saving up enough money to make a twenty percent down payment is the most direct way to avoid private mortgage insurance, but a down payment of this size may not be feasible for some buyers, especially in markets where prices are on the rise. Here are some alternatives:

Piggybacking

A common alternative to PMI is to take out a second loan to pay back the twenty percent down in addition to the primary mortgage. This is known as piggybacking, which rearranges the loan into an 80/10/10 split, where the first loan accounts for 80 percent of the total property value, the “piggyback” or second loan covers the next ten percent, and the down payment covers the remaining ten percent. (There are other loan structures besides 80/10/10, this is just one example.) This can be an effective strategy for those who are ready to purchase a home but do not have the savings to make the full down payment. However, buyers should be aware that the second loan will likely come with higher interest rates.

VA Loans

VA Loans are a helpful resource for active service personnel and veterans looking to purchase a home. Not having to purchase mortgage insurance is included among the list of benefits VA Loans offer to qualified buyers, however, they require a one-time “funding fee” that functions similarly to mortgage insurance.

Lender-Paid Mortgage Insurance

LPMI may be a viable option for buyers in certain cases. Not to be confused by the name, LPMI is a restructuring of the loan in which the lender pays the mortgage insurance premium upfront. LPMI will remain in place for the life of the loan and usually comes with higher interest rates. Buyers should consider the terms of LPMI and how they differ from standard PMI to decide which is right for them.

Other

Other types of loans offer an alternative to conventional mortgages. FHA loans have their own mortgage insurance, as do USDA loans. The mortgage insurance premium (MIP) on FHA loans may be favorable, but buyers should keep in mind that in most cases they will be paying two different insurance premiums—the upfront rate and an annual fee. To be eligible for a USDA loan, there are several requirements that both the buyer and the property must meet.

 

To navigate the process of home financing and learn about the options around obtaining Private Mortgage Insurance, it helps to work closely with a great real estate agent who can help their clients identify lenders in their network that they know and trust to secure the right loan. For more information on purchasing a home, visit the buying section of our blog: Windermere Blog – Buying

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National Homeownership Month – First-Time Buyers

In recognition of National Homeownership Month, we’re shining a spotlight on the home buying process. Each home buying journey is unique, as are the challenges that people face en route to becoming a homeowner. These three stories of first-time homebuyers showcase the importance of working closely with an agent to navigate the buying process and find the perfect home.

 

Maria and Alvaro – Windermere Agent Team: The Brazens

Being first-time homebuyers, Maria and Alvaro knew they would have to adjust to the changes in the market. They were among a large influx of buyers buying during the pandemic, so they were aware that sellers had high expectations when it came to accepting an offer. A confluence of factors, including the pandemic, low interest rates, and many buyers’ desire for homes with more space, were igniting bidding wars left and right, with houses often going well above asking price. This also drove up listing prices on comparable homes in the area. These factors forced Maria and Alvaro to be flexible when it came to location and what they had previously considered “must-haves” for their ideal home at the beginning of their search.

They worked closely with their agents Taylor Brazen Tagge and Randi Brazen of The Brazens—a family-led real estate team based in Bellevue, Washington—to find the right competitive balance in what they were able to offer before hitting the market. This meant, in some cases, adjusting their expectations about what the “perfect” home was for them and having the patience to wait until they found it. They knew that when they time came; they would have to be aggressive in their approach.

Maria and Alvaro relied on Taylor and Randi throughout the buying process. The Brazen team’s knowledge of the Bellevue area provided the guidance and advice they were looking for to help them make informed decisions. The Brazens met with them at several showings, walked them through neighborhoods, and made themselves available to answer any and all questions they had along the way. The trust they formed in the early stages of working together laid a foundation for a friendship that translated to a successful experience navigating the market. They eventually found the home of their dreams, and although Maria and Alvaro miss working with the Brazens, they are grateful for the ultimate success of their home buying journey.

For Maria and Alvaro, homeownership is not just a financial investment; it is the start of a new chapter that will eventually provide the means for them to grow their family. They encourage buyers to be patient in finding their perfect home. It may be challenging at times, but the reward is so worth it.

 

Jocelyn – Windermere Agent: Nick Odermann

During her yearlong home search, Jocelyn’s expectations were quickly replaced with the reality of the hot housing market amid the pandemic. While touring homes, she realized that many listings were in worse condition than the photos implied, so she adjusted her expectations to remain levelheaded through the process. She experienced the pandemic buying frenzy first-hand when she was outbid multiple times and saw several homes sell for significantly higher prices than what they were listed for.

Luckily, Jocelyn had a trustworthy agent at her side by the name of Nick Odermann, who is one half of the Odermann Brothers team in Lake Oswego, Oregon. Together with his brother Steve, Nick helped Jocelyn navigate the challenges of finding a home in a seller’s market. Jocelyn was living in Southern California at the time, so she relied heavily on Nick’s judgement as he toured homes on her behalf. She had a specific vision of her dream home and Nick stayed true to it, quickly pointing out which homes would not suffice. When Jocelyn began to lose hope, Nick stayed positive. He was sure the perfect home was out there—and he was right.

For Jocelyn, homeownership is her path to adulthood. Now that she has a home, she looks forward to growing her pet care business. Becoming a homeowner was a major life goal of hers, and now that she’s achieved it with the help of her Windermere agent, she couldn’t be happier.

 

Jake – Windermere Agent: Taylor Hinds

It’s common for first-time homebuyers to learn as they go through the process, and Jake quickly discovered that information was the key to overcoming challenges. For example, he had no idea what earnest money was or that it was something he had to factor in on top of his mortgage. Learning that helped him work with his Seattle-area agent, Taylor Hinds, to form a strategy for making an offer.

Like the buyers above, Jake was buying in a hot seller’s market during the pandemic. He was surprised by how cash-ready sellers expected buyers to be. Luckily, he had a team behind him who were communicative and transparent throughout the whole process. When it came time to write a competitive offer, he leaned on Taylor’s expertise and advice to make the offer as attractive as possible, which eventually made all the difference in securing a home.

To Jake, homeownership means having a place to call your own, a place to be proud of. He looks forward to creating memories in his new home and building equity over time.

 

To begin your own home buying journey, connect with an experienced Windermere Real Estate agent today:

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