Shared Ownership Mortgage Advice
Talk with your partner about some of the issues that may arise before you purchase a home with another person. Buying a home is a big deal, regardless if it is your first or 20th home. Decide if you both intend to live in the home and, if so, what the mortgage arrangements will be. Some partners split everything down the middle, regardless of income. Others split it based on percentage of income, with the higher-earning partner shouldering a higher burden of the expenses.
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Down Payment
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Decide how much the down payment will be and how much each party will contribute to it. Most mortgage loans require a certain percentage of the purchase price as a down payment. In addition to the down payment, there are closing costs that must be paid at closing as well. Moving and furnishing costs must be paid for as well. Talk about the responsibility for buying and moving into the home before you begin shopping for a home.
Payment Arrangement
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All of the individuals purchasing the home need to be on the same page when it comes time to make the mortgage payment. The lender will not just foreclose on half of the home if one person makes their half of the payment and the other does not. The lender expects payment in full each month. One solution is to create a joint account out of which the mortgage payment comes, and keep at least one month's payment in reserve. This way, if something happens and one person is late with part of the payment, the mortgage company still receives the payment on time. Define the consequences if this becomes a habit.
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Maintenance Agreement
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Owing a home also means being responsible for the maintenance of the home. Decide who will pay what amount when the hot water heater needs repair or the fence blows down. The insurance company pays for some items, but both of you are responsible for the deductible for the repair. Even deciding who will mow the grass ahead of time may be a good idea.
Exit Plan
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Create an exit plan up front. Buying a home with another party is much like being in business with another person. Determine in writing whether, if one person provides 60 percent of the down payment and 60 percent of the monthly payment, that person owns 60 percent of the home and receives 60 percent of the equity when it is sold. If not all of the parties agree on what will happen when the home is sold before it is purchased, the equity of the home could be lost to attorney's fees and court costs when one person feels taken advantage of.
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