Many couples – or groups of friends – who are first time buyers are unaware that there are two different agreements to choose from, to co-own your property. One is to become joint tenants, with a joint mortgage. The other is known as “tenants in common”.
Don’t be misled by the use of the word tenant. This is still about you both having a share of the property you are purchasing together.
The basic difference
If you become joint tenants, you both own the property in its entirety and your legal status is equal. You are also equally responsible for meeting mortgage payments. If one of you dies, the other would become sole owner of the property.
Tenants in common is a different type of legal agreement. It attributes shares of the home – rather than making you both owners of the entire property. You may also have different responsibilities for meeting the mortgage payments.
This provides more flexibility in how you divide ownership of your new home. It is often still used for a split of 50/50 in terms of ownership, but it can be varied if you want to. The other significant difference with tenants in common, is when one co-owner dies they can leave their share of the property to who they specify. This could be the co-owner, or anyone else such as their child or children.
Advantages of being tenants in common
If three or four friends are sharing ownership of a property, having a tenants in common agreement is often the recommended route. This option is also chosen by some people to take advantage of benefits in terms of inheritance tax or avoiding future care home bills.
A tenant in common agreement can also be the best option for couples if the amount you are each investing is different For example, perhaps one partner is putting the deposit together, and the other is finding a higher proportion of the monthly mortgage payments.
If you reach agreement as tenants in common, you can proportion ownership in a more simplistic and upfront way.
Establishing tenant in common arrangements
If you choose this particular way to co-own property, getting legal help is vital. A deed of trust will confirm the way you are splitting legal ownership and any requirements going forward. This will include how you are splitting contributions to mortgage payments and any maintenance costs.
This forward thinking includes giving thought to how to get power of attorney. If you are entering into a tenant in common deed of trust, assigning lasting power of attorney provides peace of mind. For example, it assigns responsibility for meeting mortgage payments and arrangements for the co-owner to continue to live in the property if one partner dies.
Knowing how to get power of attorney is also important (with both joint tenancy and tenants in common) as agreement is needed by both owners before the property can be sold.
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