Is buying a house with a sibling a good idea? 5 steps for success

Coming up with the money you need to buy a house can seem out of reach for many people to do alone. According to a recent survey, about half of Americans are willing to split the cost of buying a home with someone else.

Buying a home with your sibling may help you pool your resources and get into a nicer home than you could afford alone. But there are a few steps you’ll want to take to make sure the experience is a positive one. We’ll explore these below, as well as the pros and cons of co-owning a home with your sibling.

Key takeaways:

• Buying a home with your sibling may help you qualify for a more expensive or nicer home than you could on your own.
• Each sibling should be open about their financial situation, including their credit score, debt-to-income ratio, and other similar factors.
• Disagreements in how you maintain or manage the home could potentially cause strain in your relationship.
• Working with a real estate agent who is familiar with helping siblings and co-borrowers buy homes together could simplify the process.

Step 1. Consider financial options

Take a long, hard look at your financial situation as a whole. Each of you brings a certain set of circumstances to the table. Your combined and individual finances can make a difference in the type of home you can afford and the types of loans you may qualify for. 

These are the factors you’ll want to consider before you start your search:

• Your credit scores: Lenders prefer to work with borrowers with higher credit scores. Be sure to check your credit score as soon as you and your sibling decide to buy a house together.
• Your down payment savings: Most lenders require you to pay at least 10% of the home’s purchase price as a down payment on the loan. Consider how much each of you can afford to contribute.
• Your debt-to-income ratio (DTI): Most lenders prefer working with borrowers who have a DTI of 36% or less. If your DTIs are higher, you may still qualify for a loan, but you may want to pay off some of your debt before you apply for a mortgage.
• Employment history: Having a stable employment history looks better on mortgage applications. If you’ve job-hopped, you may find it harder to qualify for a loan.
• The types of home loans you’re interested in: Explore your options and come to an agreement with your sibling about the types of loans you’re interested in.

Be honest with each other as you have this conversation. This way, you’ll know exactly where each of you stands.

Step 2. Choose the best ownership agreement

When you’re buying a house with a family member, you’ll want to establish a clear ownership agreement. This outlines what happens to the property if one of you passes away. There are two main ownership options to consider:

• Joint tenancy: This type of ownership agreement allows each sibling to have an equal share of ownership over the property and guarantees rights of survivorship, meaning the remaining sibling(s) will inherit the deceased sibling’s share in full.
• Tenancy in common: This ownership agreement allows siblings to have unequal shares of ownership in the property. It also gives each sibling the right to sell their share at any time. Each sibling can appoint a designated person to inherit their share if they pass away.

Ultimately, the ideal ownership agreement will depend on what works best for you and your sibling. 

Step 3. Consult with a real estate attorney

Real estate attorneys can help you protect your interests by making sure ownership agreements and any questions of inheritance are established legally and in a way that works for your needs and goals. 

Your attorney can help you and your sibling come up with an agreement that works for both of you. And if there’s ever a dispute, your attorney can help you find a solution while still honoring the contract you and your sibling entered into.

Here are a few questions you’ll want to ask each attorney before you commit to working with them:

• How much experience do you have helping siblings purchase a home together?
• How will you communicate with us throughout the process?
• What are your fees/how do you charge for your services?

The right real estate attorney should have experience working with siblings or at least helping two or more buyers purchase a home together. They should also be willing to communicate with you in a way that works for you, whether that’s via email, phone calls, or text messages. You’ll also want to make sure you can afford their fees and that you’re comfortable with how they bill for their time.

Step 4. Create an ownership contract

To protect both of your interests, you and your sibling will want to create a clear ownership contract. At a minimum, you’ll want it to touch on the following terms:

• Your ownership agreement
• Your exit strategy if either of you decides to sell in the future
• Who is responsible for which payments and in what amounts or percentages
• Who can inherit the property
• How you’ll handle life changes like moving to a new state, getting married, or having kids

This written agreement will be legally enforceable, giving you both peace of mind. If you enter into a dispute, the contract will provide guidelines for how you can handle those disagreements. 

Step 5. Find the perfect home

Before you start touring properties, take some time to discuss what you both want the property to have and what you both need in a home. This will depend on your situation. Take your time and come up with a list of wants and needs that you both agree on.

Using that list, you can start looking at properties that meet your needs. Consider working with an experienced real estate agent who is familiar with helping siblings purchase homes together. Real estate agents can explain the ins and outs of buying a house with a sibling, making the process easier. They can even help you negotiate the best price on your new home.

Remember, you may need to view several properties before finding the perfect home. As you tour each property, be open and honest with your sibling and your real estate agent.

Pros and cons of buying a house with a sibling

Buying a home with a sibling can be a great way to get into a nicer or more expensive home, but it’s not the perfect option for everyone. Here are a few pros and cons of co-owning a home with a sibling that you’ll want to be aware of. 

Benefits of co-owning with a sibling 

• Affordability: Sharing the down payment and mortgage payments can make homeownership more attainable for both siblings.
• Shared Responsibility: You can split household chores, maintenance tasks, and decision-making, lightening the load.
• Trust and Familiarity: Buying with a trusted sibling can be less risky than co-owning with someone you don’t know well.
• Building Equity Together: Both siblings benefit from the property’s value appreciation over time.
• Potential Rental Income: If you buy a multi-unit property, you could generate rental income to help offset costs.

Buying a home with a sibling can make homeownership more affordable and less risky since you’ll be buying with someone you already know and trust.

Risks of a sibling co-owner

• Financial Disparity: Unequal credit scores or income can cause complications with mortgage applications and create resentment between siblings.
• Lifestyle Compatibility Concerns: Living styles, preferences, and guest policies can clash, leading to friction.
• Communication Challenges: Open and honest communication is crucial, but disagreements and misunderstandings can arise.
• Difficult Decisions: Making decisions about renovations, repairs, or selling the property can be challenging if you disagree.
• Relationship Strain: Unexpected financial burdens, disagreements, or life changes could strain your relationship with your sibling.

Sibling co-ownership isn’t the perfect fit for everyone. If you and your sibling aren’t on the same page and confident that you’ll be able to live together harmoniously, you could end up hurting your relationship in the long run.

Buying a house with a sibling FAQ

Here are a few frequently asked questions about buying a home with a sibling so you can make the best decision for your situation.

Can siblings buy a house together?

Siblings can buy a house together. By pooling your resources, you may be able to get into a nicer home than you could on your own.

What is the best way for siblings to buy property?

Every situation is unique, but many siblings buy property together as co-borrowers with a joint loan. Co-borrowers are responsible for making mortgage payments and contributing to the upkeep and maintenance of the home together. 

Can siblings get a home loan together?

Siblings can get a home loan together by applying as co-borrowers on a joint mortgage. Each lender will have different requirements, so do your research. 

Can 3 people buy a house together if they’re siblings?

Most lenders restrict joint mortgages to four borrowers over the age of 18. However, there is no legal limit in place, and some lenders may allow more siblings to apply. 

Does each sibling have to contribute equal amounts of money to the home?

Siblings can contribute equally to the home purchase if they want to or can afford to. However, if one sibling makes significantly more, they can choose to assume a greater portion of the mortgage, upkeep, and other costs.

Prepare to buy a home with help from Credit.com

Buying a house with a sibling can be a great choice for buyers needing help to qualify for a home. But before you start looking at homes, have an honest conversation with your sibling about how much you can afford to spend and what types of loans you may want to apply for. Once you’re on the same page, compare mortgage rates at Credit.com to find the best home loan for your needs.