Are you ready to buy a home? You’ve been saving up money, establishing your career, and are looking at dream places to purchase. But in cities and areas where real estate is expensive, it can still seem tough to imagine owning property on your own.
That’s why in some cases it may make sense for you to pool your resources with someone else (or multiple people). That, however, opens up a number of other questions and issues.
If you’re buying any kind of property with another person, even family, then you’ll need to consider how you want to co-own or take title to it . Tenants in common is one way to take title to a property.
Taking title as tenants in common first became popular in the 1980s in cities where the price of real estate had increased due in part to limits on condo conversions and project approvals, which made purchasing property with others a more viable financial option.
Taking title in this manner has grown in popularity, especially in expensive urban areas, where pooling the resources of different individuals became a way to increase purchasing power.
What does taking title as tenants in common mean and does it make sense for you?
Tenants in common, also known sometimes as “tenancy in common,” is a way for multiple people (2 or more) to hold title to a property. Each person owns a percentage of the property, but they are not limited to a certain space on the property.
In other words, you might be tenants in common with one or more persons, each holding a percentage of ownership share (which does not have to be equal), but you have a right to the entire property. There’s no limit to how many people can be tenants in common and despite the use of the word “tenant,” tenants in common has nothing to do with renting.
Who Can Take Title As Tenants in Common?
Tenants In Common includes a natural person as well as a validly formed cooperation, limited partnership, limited liability company or general partnership. Trust property is vested in the trustee (usually a natural person or corporation).
Here are some key points that generally define tenants in common:
• Ownership can be held in equal or unequal shares. For example, one person could own 50%, while the other two each own 25%.
• All tenants have equal rights to all of the property. No tenants can exclude any others. One person can live in the residence or everyone can.
• Tenants can also be created at different times or added later (law presumes interests are equal unless otherwise specified).
• If a tenant dies, their rights do not automatically pass on to the other tenants. Their portion would pass to their heirs or whoever they designate in their will.
By comparison, taking title as joint tenancy (or Community Property with Rights of Survivorship) requires that all parties have an equal share of ownership and that they all sign on at the same time to the same deed. This type of ownership is common among married couples. Under the Right of Survivorship, if one tenant dies, then their rights are passed on and split evenly among the surviving tenants. A joint tenancy can be broken if one of the tenants transfers or sells his or her interest to another person (this interest cannot be transferred in a will), thus changing the ownership arrangement to a tenancy in common for all parties.
Some Pros of Tenancy in Common Real Estate
With the rising cost of real estate, especially in expensive markets, taking title as tenants in common can be one way to pool money and buy property you couldn’t otherwise afford as an individual.
Because tenants in common also allows for flexibility in terms of how you work out the specifics of living arrangements, it lends itself well to situations where friends decide to go in together on a vacation home or property where they won’t all be occupying the property at the same time.
You can transfer your share at anytime without the consent or approval of the other tenants. You also have the right to mortgage, transfer or assign your interest and so do your partners.
The Cons of Tenancy in Common Real Estate
Tenants can decide to sell or give away their ownership rights, without the consent of the others, which means you might end up co-owning a property with someone you don’t know or even like.
One or more of the tenants can also buy out the other tenants if they decide to dissolve the tenancy in common. The property can also be sold and the proceeds split per ownership percentages.
In terms of real estate law, one of the main issues with a tenancy in common is that if you all signed the mortgage loan in order to purchase the property, you could end up being liable for someone else not paying their portion of the mortgage or for creditors forcing a sale or foreclosure of the entire property.
Increasingly, some banks and lenders are offering fractional loans for tenants in common on real estate that is easier to divide into separate units, which then allows each tenant to sign their own loan tied just to their percentage of the property.
Getting Started in the Home-Buying Process
Buying a house can seem overwhelming, but it doesn’t have to be. In fact, applying for a mortgage with SoFi is nice and straightforward. The entire process is online—and what’s not to love about being able to apply for a mortgage from your couch?
Not only that, but SoFi offers mortgages with as little 10% down on homes up to $3 million. And there are absolutely no hidden fees or prepayment penalties on a SoFi mortgage.
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