Throughout the year we get lots of mortgage-related questions from our customers and readers of this blog. We thought it would be fun to start answering some of the questions on a regular basis as a featured post. If you have a question, send it to us through the contact us page.
“I’m confused about the different ways one can hold title to a home. I’m a first-time buyer and my mom is interested in being on the loan with me. Would you please explain the options?” – Eve in Denver
Several options as to how title to a home can be held exist, each has its advantages. It’s important to know your options before signing the final papers.
SOLE OWNERSHIP. For a single person buying a home, this is the most often used title-holding option. Even married couples can choose this Sole Ownership if one of the spouses signs a quick claim deed terminating marital rights to the property. The primary reason couples would choose this option would be for business purposes.
TENANTS IN COMMON. A piece of property can be owned by two or more people. Owners do not have to be living on the property and owners can own unequal shares in the property. For instance, three people can own a piece of property, with one person owning 50%, another owning 30% and the third owning 20%. This becomes especially important when the property sells or when one of the owners wants to sell. He or she can sell their portion without the approval of the other owners. Tenants in Common is used especially with second marriage partners who want to leave a portion of their property to children from previous marriages.
JOINT TENANCY WITH RIGHT OF SURVIVORSHIP. This option of title holding is most often used by married couples. Each has full title to the property and upon death of one spouse, the other spouse solely owns the entire property. This type of title holding does not require the addition of a Will to implement. A drawback of Joint Tenancy is that either owner of the property can transfer their share without permission from the other, possibly ending the Joint Tenancy and creating a Tenants in Common.
COMMUNITY PROPERTY. To date, ten states allow couples to purchase property as Community Property. This means that each person owns 50% of the property and a Will must be in place stating who will get the 50% share upon the death of either of the partners – it is not automatic, as it is in Joint Tenancy with Right of Survivorship.
LIVING TRUSTS. Utilizing a Living Trust is like having another “entity” own and control your assets, including your home. But that “entity” is yours, or others designated as trustees, who “own” the entity. While the creator of the Living Trust lives, the Trust is revocable (can be changed) during his or her life. Upon the death of the creator of the Living Trust, it becomes irrevocable (cannot be changed), and probate costs and delays are avoided because the assets in the Trust automatically pass according to the dictates of the Trust. Privacy is a major attraction in setting up a Living Trust. A trust document does not become public upon the death of the trust-holder like a Will does.