Yahoo Finance This Trend Could Help More Americans Afford Homeownership in 2024
In 2023, nearly 2.4 million renters were priced out of buying their own home across the U.S., according to statistics from Habitat for Humanity. Additionally, the median income needed to afford a home rose by 20%, up to $117,000.
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The average income in the U.S. in 2023 was just $57,406, according to DemandSage.com. Even if you double that figure to account for two adults in a household earning an average income, they still come up too short to buy a home.
With this in mind, it shouldn’t surprise you that nearly 15% of Americans have teamed up with a friend, family member or other non-romantic partner to purchase a home, according to a new survey from JW Surety Bonds. Another 48% said they would consider it.
“While situations and economic factors can change at any time, we suspect this trend might be here to stay,” said Hannah Workman, part of the creative team at JW Surety Bond. “We found that nearly 1 in 4 people who co-bought a home with a non-romantic partner said they could not have afforded the purchase alone. For those determined to own a home, co-purchasing might emerge as the most viable option.”
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Gen Z Are the Most Willing to Co-Buy a Home
70% of Gen Z respondents said they were open to the idea of co-buying a house, indicating the willingness of the younger generation to adapt to challenging economic times.
“Gen Z is entering the housing market with more information than previous generations. Seeing how their parents or siblings may have struggled to buy a home could have caused them to think outside of the box when it comes to home ownership,” Workman told GOBankingRates.
Gen Z also sees more than just the financial benefits to co-ownership, according to the survey. “Our study revealed that 70% of Gen Z are interested in co-buying a home as a personal residence, the most of any generation. They also are more likely to buy homes with friends. Roughly 1 in 4 Gen Zers believe co-buying a home can strengthen relationships, and only 1 in 4 Gen Zers are concerned about the risk of default or uneven investment,” Workman explained.
Key Reasons for Co-Buying a House
Co-buying a house can make homeownership affordable for a larger demographic of people who, alone, may not have the household income or solid credit history to secure a mortgage or afford a home. It can also help strengthen bonds between family members or close friends.
Survey respondents highlighted the top seven perceived benefits of co-buying a home with someone other than a romantic partner. These benefits are:
Sharing costs (67%)
Affording a better home (56%)
Investment opportunity (54%)
Sharing responsibilities (48%)
Building equity (35%)
Tax benefits (27%)
Strengthening relationships (17%)
Challenges of Co-Buying a Home
Co-buying a home comes with risks, however. Of the challenges, or perceived drawbacks, to co-buying a house, 79% of people cited “interpersonal conflict.”
In order, the other perceived drawbacks are as follows:
Legal and financial complications (62%)
Potential for financial loss (52%)
Difficulty selling or transferring ownership (49%)
Risk of default (38%)
Unequal investment (38%)
Inheritance issues (30%)
Impact on credit (29%)
How to Protect Your Investment When Co-buying a Home
Any of these factors may play into co-buying a home, but there are ways to protect yourself, Workman said. “When considering buying a home with non-romantic partners, an important tip is to draft a legal agreement outlining each person’s responsibilities and rights. This should include how mortgage payments, property taxes, insurance, and maintenance costs will be split.”
The agreement should also include roles and responsibilities beyond the financial aspect, whether both parties are living in the home, one is living on the premises and one is not, or if they are renting the space for income. “Creating a co-ownership agreement or a roommate agreement with clearly defined roles and responsibilities can help circumvent issues,” Workman noted.
The paperwork should include how both parties will share maintenance and repairs, how common areas will be used, how major decisions will be made, and how to address unforeseen life changes. “Updating this document as needed will help prevent arguments as well,” Workman added.
The agreement should also include an exit plan, Workman added. “Co-owners often have to think of exit strategies in case one of the parties doesn’t live up to their side of the agreement or wants to sell.”
Above all else, Workman said, open and transparent communication can help prevent problems before they arise. “Respecting the wants and needs of every person involved can help keep everyone happy. Finally, being open enough to be able to make adjustments as needed will benefit everyone involved.”
The Process of Co-Buying a Home: What You Need to Know
Workman pointed out that the process of co-buying a home with a non-romantic partner differs from purchasing one on your own or with a spouse or romantic partner. Choose your co-buyer carefully, since you will be financially tied to this person for as long as you own the property.
“Both parties should thoroughly assess their finances. This includes checking credit scores, discussing financial stability, and ensuring both are equally committed to maintaining mortgage payments and other housing-related expenses,” Workman said.
Next, you’ll need to decide how you’ll hold the title. Workman pointed out that you can have joint tenancy, tenants in common or you can establish an LLC, which would own the home.
“Each has different legal and tax implications, especially regarding what happens if one owner dies or wishes to sell their share.” With that in mind, she also advised taking out life and disability insurance policies to protect the interests of both owners.
When you’re shopping for a mortgage, there may also be additional considerations when two people who are not romantically attached buy a home together. “Each family or person has different needs, and those should be in alignment before starting the process,” Workman added. “When it’s time for pre-approval, lenders may have different requirements for co-buyers, given there are more people and financial histories in the mix. Also, each party should sign a comprehensive co-ownership agreement that outlines all the details of the partnership, whereas romantic couples or people hoping to buy a home on their own generally don’t have that step.”
The co-ownership agreement should be included with the closing paperwork, so there is a record if a legal dispute arises.
Bottom Line
Even with the extra hoops to jump through, co-buying a home can be a financially and emotionally rewarding experience. The survey showed that 49% of co-buyers made the newly purchased home their primary residence, while the rest used the house as an investment, with 26% renting the home and 17% flipping it for profit.
“While we can’t know for sure what will happen with the housing market this year, we predict that interest rates will continue to drop slowly and house prices will continue to rise slowly as well,” Workman concluded.
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These factors indicate it will be a while before we see single-family homes become more affordable for individuals. Co-buying a home could very well become the revised American dream.
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This article originally appeared on GOBankingRates.com: This Trend Could Help More Americans Afford Homeownership in 2024
