BUYING IN PARTNERSIP:
HOW THIS WILL ENABLE
MORE PEOPLE TO BECOME HOME OWNERS
AND HOW TO PUT REAL ESTATE INTO TRUST TO PROTECT IT
TO EDUCATE YOUR GRANDCHILDREN
AND CARRY OUT YOUR CALLING
My focus here is on how buying real estate in partnership with others will enable more people to own their own homes.
The lowest cost starter home in Snohomish with three bedrooms costs around $400,000. With an FHA loan the payments will be $1,910 + $400 for taxes and insurance, and $300 for FHA insurance, for a total of $2,610. At a 31% debt to income ratio, the income required to support this mortgage would be around $8,400. For a couple this means they need an average income of $4,200 each.
FHA requires a down payment of 3.5% plus closing costs. Sellers can pay most of a buyer’s closing costs. There are down payment assistance programs that will cover most of the down payment.
If three couples who know and trusted each other put together six incomes and buy a 3,500 square foot home with five bedrooms, they would be spending probably $680,000, and each couple would be bearing a purchase price of one-third of that, around $227,000 per couple.
With an FHA loan the payments will be around $3,246 + $600 for taxes and insurance, and $500 for FHA insurance, for a total of $4,346. At a 31% debt to income ratio, the monthly income required to support this mortgage would be around $14,000. With six borrowers, the income needed per person would be $2,337, which would make the project more feasible.
Another alternative, for those who want more privacy is to buy a four-plex. The FHA loan limits for a four-plex are quite high, up to $1,282,000. So four families, each with a $5,000 per month income could easily qualify, and do so with only 3.5% down. Each couple would be bearing a purchase price of one-fourth of $1,282,000 or around $321,000.
By buying in partnership each couple is qualifying for less than the $400,000 each couple would bear if they all bought starter homes.
Another variation of this is the family partnership. Dad and mom both work. Grandma lives with them and has Social Security income. She also has down payment money saved up. Two married children will join in the purchase. Now they have seven incomes, and qualifying becomes much easier. The current home can be leased out for enough to cover mortgage payments.
When you buy in partnership with others, you should have a partnership agreement. If I am your broker I will provide you with a well-studied first draft of a partnership agreement. If you are all going to live jointly in one household together, you will also need a house sharing agreement, and I will provide a first draft of that also.
I cannot provide you with final documents because I cannot represent all of you in an area where you might have differing interests. So you would have the partnership agreement and house sharing agreement reviewed by your own counsel before it would become final.
James Robert Deal
Real Estate Attorney & Real Estate Managing Broker
PO Box 2276 Lynnwood WA 98036
Law Office Line: 425-771-1110
Broker Line: 425-774-6611
KW Everett Office Line: 425-212-2007
I help buyers, sellers, brokers. Flat fee payable at closing.
Property search: JamesRobertDeal.com