Latest posts by Matt Holmes (see all)
- CoBuy-certified™ Mortgage Pro: Trevor Reese - October 8, 2019
- Mortgage before marriage? Read this first. - September 14, 2019
- Co-buying a home with help from the Bank of Mom & Dad - September 12, 2019
Supply and Demand
Skyrocketing home values and rents are easily explained by simple economics. There are too many people chasing too few places to live. The Master Builders Association of King and Snohomish Counties reports that only 41 new housing units are added each day compared to 143 people and 120 new jobs in King County. At the same time, a report on buildable land has found that there is enough buildable land to meet demand from the influx of people to the region. So why the disconnect between the supply of housing and the demand for housing? The report assumes that everyone is happy living in high-rise multifamily units. More than a few Seattlites would beg to differ.
What is clear is that most Seattlites (and Americans) want to own their own home. Whether the reasons are financial, social or some combination, many Americans still see homeownership as a key part of the American dream. Unfortunately, realizing this goal is increasingly challenging for many folks and the high cost of housing is starting to drive some to consider leaving the region. Others are looking to alternative means of dealing with soaring home costs (and rents) including living with friends or family, flexible micro-housing living arrangements, and pooling resources to co-buy a home with friends or family.
Pooling Resources to Co-buy a Home
When it comes to co-buying a home, we know that more than one in five home purchases nationally involves adults buying together who aren’t married to one another. In fact, purchasing a home with a friend or loved one is not a new concept. The logic is simple: pooling resources can be a great way to purchase a home that might otherwise be out of reach. For instance, three buddies or family members who can qualify for a $250,000 mortgage on their own can pool their resources and qualify for a $750,000 mortgage. The higher price point opens up options and the group can take advantages of economies of scale (more bang for your buck at higher price points).
For example: Let’s imagine a $1 million home in Greenlake area. Three or four friends could pool their resources, with the added possibility of one or more parents chipping in to help with the down payment. If we assume a loan amount of $800,000, the required combined income for our group of 3 or 4 is about $15,000 per month (requiring salaries of $60k each or $45k each, respectively). At today’s interest rates and assuming a good credit score, the monthly payments (principal, interest, taxes and insurance) would be approximately $5,000 per month. Assuming a group of four co-owners with equal ownership and liability, the group members would each pay $1,250 a month. But wait! A portion of this payment is likely to be tax deductible against each co-owner’s respective incomes, reducing the amount of income tax for the co-owners.
Can You Afford to Keep Renting?
Unless you’re living for free with friends or family, you’re paying off somebody’s mortgage. It goes without saying that many folks would rather be paying off their own mortgage, building equity, receiving tax breaks, and living in a place of their own versus paying off their landlord’s mortgage. Afterall, if the monthly payment to co-own a place is similar to paying rent on a like-for-like basis, why wouldn’t you own? Tiny problem. Getting a down payment together is often times a major hurdle. Co-buying is one way to overcome the hurdle of gathering sufficient funds for a down payment. By pooling resources, taking advantage of economies of scale, and splitting the down payment, buying a home may be more feasible than you think. With rents in Seattle surging, the question may in fact be can you afford not to buy a home?
For more info, check out CoBuy. Our online platform makes it easy to buy a home with friends, family, or a loved one. We guide you through the process from start to finish, assisting with planning, joint financing, and preparing a co-ownership agreement.