Many would-be homeowners have caught the scent of bargains, as the average home has lost about 18 percent of its value in the past year. For those who plan to stay put for a number of years and don’t have to sell a home at a distressed price before they can buy, today’s market may look like a great opportunity. That includes lots of first-time buyers.
But what if you have trouble coming up with the 20 percent down payment most lenders demand these days? Or suppose you think the payments are too steep, or that you could lose your house if you lose your job?
Maybe you should consider taking on a partner.
Most home buyers restrict their partner search to their own spouses or romantic partners. But the more daring or desperate team up with friends, parents or other relatives.
Often, the partners will share the property. You may pick a college buddy or someone you work with, buy a home and both move in.
In other cases, only one of the owners will move in, while the other acts more like an investor, as when parents co-sign the mortgage contract.
And in still other cases, the partners alternate their use of the property. That’s common with vacation homes.
Whatever the arrangement, there are some key issues to explore when the owners don’t have the long-term commitment spouses do.
If you plan to live together, it’s obviously important to have compatible lifestyles. But unlike college roommates, you’ll have to have a system for making big decisions, not just who does the dishes. It’s best to agree up front on plans for things like major improvements and a fund for emergency repairs.
Will you split all costs evenly, or will one partner take on the lion’s share of chores and projects while the other shoulders expenses?
With a vacation property that you will each use at different times it might be best to set a schedule before completing the purchase. Accommodating partners should be flexible, but an upfront agreement gives you something to fall back upon if you both want Christmas or the 4th of July.
Finally, and perhaps most importantly, reach an agreement up front about how you will eventually dissolve the partnership. What will happen if one of you has to move for a new job, gets married or just tires of the arrangement? For how long will the departing partner be obligated to share expenses? Can one partner lease out his or her share? Would the other partner have a veto over the new roommate? Will you sell the property? Or will one partner buy out the other? How would the price be determined, and how would the proceeds be divided?
What would you do if one wants to accept a buyer’s offer and the other does not? It might be best to have a safety-net clause: If the place has been on the market for a given period, any offer at or above the price suggested by recent nearby sales is to be accepted.
All these matters, of course, should be in a legal contract prepared by a lawyer.
Before recruiting a partner, see if you are eligible for a mortgage backed by the Federal Housing Administration, as these typically require down payments and other closing costs totaling no more than 3.5 percent of the purchase price. If down payment is your issue, an FHA loan might be preferable to a partner. Many lenders, such as Wells Fargo (Stock Quote: WFC) and Bank of America (Stock Quote: BAC) offer FHA loans.
Use the BankingMyWay.com search tool to locate a good deal, and the Mortgage Loan Calculator to figure payments.
Be sure to talk about your plans with your lender, as some are more welcoming of partnership deals than others.
The lender may well stipulate that each partner is responsible for all payments, so you’d have to shoulder all the costs if your partner runs off.
Finally, consider taking out inexpensive term life insurance policies, with each partner naming the other as beneficiary. That will cover the survivor if something happens to the other partner.