One of the things I like most about my job is that I learn something every day. Case in point? A client recently posed a question I hadn’t previously considered: is it possible to buy a duplex with a friend and use an FHA loan?
The answer is yes, which may seem obvious. But, doing so does have its own unique challenges.
My clients saw buying a Minneapolis duplex together as way for each to have her own place, but be in a neighborhood they individually couldn’t afford.
The only FHA restrictions, outside of the standard set used for single family homes, is the multi-family duplex has to have two distinctive entrances; no walking through one unit to get to the other.
Great idea, huh? Except for when it comes time to sell.
What if one person wants to and the other doesn’t?
Well, in real estate, there are two ways you can take title (ownership) of a property. The first is called joint tenancy. When two or more people own a property, and one passes away, this form of ownership allows the other to inherit the other person’s share of the property, without going to court. What’s more, this way of taking title requires that both or all owners agree in order for a property to be sold.
The second form of title is called tenants in common. Often referred to by the acronym TIC, this way of holding title allows each individual to will their interest in a property to whomever they chose. What’s more, his or her share may be sold without the permission of the other owner(s).
Of course one owner selling when both parties are on a loan may trigger some alarms at the bank. Not to mention that owning property with friends can be challenging.
That’s why it’s critical that the buyers consult an attorney before they venture in together. It’s better to have negotiated out clauses and understandings of individual and joint responsibilities up front.
It not only helps when it comes time to sell, it may help you keep a friend.