First Time Homebuyer: Tenants in Common

What Every First-Time Homebuyer Should Know about Tenancy in Common 

When buying your first home, it’s easy to get swept up in discussions about interest rates, closing costs, and monthly payments. One topic often gets overlooked is how property ownership is legally held.  The way you hold the title to your property is more than a formality, this detail, on the deed, that seems innocuous at the time, is recorded at your county and has long lasting legal and financial implications.

True Story: When Property Ownership Gets Sticky

Imagine this: A couple, firmly set on not having kids, decides to buy a home. The wife (although it is unclear if they are technically married under the laws of the state) takes on the mortgage and provides the down payment (or so it seems). The husband is added to the deed as an owner. After closing, it’s revealed that the wife’s father provided the down payment.

Payment obligations: Mortgage payments and property tax obligations are each equally shared between the husband and wife.  

Sticky: The relationship falters. Who truly has a claim to the property? And what if the wife’s family demands the downpayment back? What about the contributions of the husband?

Option: The scenario, above, highlights why understanding Tenancy in Common could be an option.

What Is Tenancy in Common?

Let’s dive into the concept of Tenancy in Common and why it might be a game-changer—or a deal-breaker—for your homeownership journey.

This legal structure to hold property allows multiple people to have ownership of a property, each with a defined share, and it determines what happens to that share if one owner passes away or wants out.

It is an option for people to have an interest in property with a lot of flexibility. For example, tenancy in common allows a variety of property ownership weights not available in other ownerships such as Joint Tenants or Tenants in the Entirety.  Tenants in common have features whereby:

• Two or more individuals may hold an undivided interest in the property.
• Ownership shares can be equal or unequal.
• There’s no right of survivorship—meaning, an owner’s share doesn’t automatically transfer to other co-owners upon death. Instead, it passes to their heirs or as directed in their will.

 Who Can Hold Property as Tenants in Common?

• Married couples (though it’s uncommon).
• Unrelated individuals or friends pooling resources to buy a home.
• Business partners investing in real estate.
• Siblings or family members buy shared vacation homes.

Why Tenancy in Common Matters: Real-Life Scenarios

Unmarried Couples: Imagine a couple in a state that doesn’t recognize their partnership, or they are truly just two people buying a property with no relationship other than platonic. Tenancy in common ensures each person’s share goes to their designated heirs, not automatically to the surviving partner.

Second Marriages: A spouse may want their share of the property to go to their children from a prior relationship rather than their current partner.

Group Purchases: Four friends buy an apartment building, under tenancy in common, each can pass their share to heirs or sell it without impacting others.

In our modern world there are so many options and truly you are the only one who can decide what is best for you. As with most things in life, there are pros and cons so, let’s explore both:

Pros of Tenancy in Common

• Flexibility: Owners can hold unequal shares (i.e. 70/30 split).
• Transferable Ownership: Each owner can sell or bequeath their share without affecting others.
• Affordability: Allows multiple buyers to pool resources for a property.
• Divided Costs: Co-owners can share mortgage payments, taxes, and maintenance expenses.
• Add New Owners: Additional tenants can be added over time.

 Cons of Tenancy in Common

• Financial Disputes: If one owner fails to pay their share of ongoing costs, tensions can rise.
• Conflicting Interests: One owner may want to sell while others do not, forcing negotiations—or even a sale of the entire property.
• Borrowing Challenges: Co-ownership can affect individual borrowing power, as lenders often view the entire loan as your responsibility therefore raising your debt-to-income ratio.
• Creditor Risks: Each co-owner’s debt can lead to liens on the property, affecting all owners.

Planning for a Smooth Experience

Before committing to tenancy in common, consider these tips:

• Discuss Worst-Case Scenarios: What happens if someone wants out, moves, or passes away?
• Create a Realistic Budget: Include taxes, insurance, potential cost increases and maintenance.
• Understand Your Loan: Check for restrictions like owner-occupancy requirements.
• Know Your Goals: How long do you plan to hold the property? Understand amortization schedules and future life dreams.
• Reality: Realistic expectations are needed when considering this type of ownership.

Legal and Professional Advice Is Key

While tenancy in common offers flexibility and opportunity, it’s not without complexity. Consult a licensed attorney or real estate professional to ensure your ownership arrangement aligns with your goals and protects your interests.

Final Thoughts: Is Tenancy in Common Right for You?

Tenancy in common is a powerful option for those navigating shared property ownership. However, it’s not for everyone. Be honest with yourself and your co-owners. Think about worst-case scenarios and decide if you’re comfortable with the risks and responsibilities. With careful planning and clear communication, these ownership types can be a fantastic way to achieve homeownership.

Ready to dive deeper? There's so much more to know about making smart, confident homebuying decisions. Start your journey with ”Home Buying Chaos Unwrapped!” our free mini-class designed to help you take the first step toward owning your own home. Learn the essentials, avoid costly mistakes, and gain the confidence you need to move forward.

Disclaimer: This content is intended to educate first time homebuyers and let you know there are options. Discussing the issues with the professionals you hire during your home buying journey is prudent. We are not recommending or advising you on your financial or legal situation.