How to Get a Home Loan for a Cohousing Group: Step-by-Step Guide

Buying a home and moving in with friends for a long-term stay can be an exciting and fulfilling endeavor. However, the process can be complex, particularly when it comes to securing a mortgage. In this guide, we will provide you with a comprehensive step-by-step process that will help you navigate the challenges and successfully obtain a home loan for a cohousing group.

Understanding Local Laws and Regulations

Before you even begin to consider a mortgage, it is crucial to check the laws in your locality.

Some jurisdictions have strict rules on the number of unrelated people who can live in a single home, and it might not be legal to house 7 unrelated adults together. This is a significant aspect of the legal and logistical considerations for a cohabitation arrangement. It ensures that all residents are aware of the legalities and any potential risks associated with their housing situation.

Mortgage and Ownership Considerations

The next step involves determining the proper ownership of the home. You should consider whose names will be on the deed and mortgage, and how the title will be held.

Options like group houses or adult “age in place” cohousing can work, but there are several financial, legal, behavioral, and aesthetic issues to address. It is essential to ensure that these issues are resolved before signing any documents.

Legal and Financial Considerations

Before submitting a mortgage application, consider the following financial and legal aspects:

Form an LLC or commercial entity to create a binding contract on how much money will go into the home. Establish a legal process for adding or removing members and maintaining the agreement. Determine what happens if one of you loses a job, gets pregnant, or wants to move away for a better job. Have your friends start paying you a consistent monthly amount in rent, if you live together currently, in a documentable way that can be paper-trailed. If you and your friends are all going to be on title, you should all be pre-approved for the mortgage.

It might be a good idea to consult a real estate attorney to help set up the ownership structure. If you are the only one on the loan, make sure you have agreements with each friend so that if one leaves, you aren't left holding the mortgage.

Pre-Approval and Loan Process

Start the process by seeking recommendations for a loan broker. Perhaps your real estate agent can recommend a few.

Be pre-approved for the mortgage before you start looking for a home. Be completely honest about your financial situation and goals. This includes all members of your household who will be on the title.

Understand the various ways to hold title, such as joint tenants, tenants in common, or hold the property individually. It's wise to consult a real estate attorney to help with this step.

Credit and Financial Management

Prior to applying for the loan, check your credit report for any errors. Clear them up before applying.

Avoid charging any major purchases during this time and maintain good credit standing until escrow closes on your new home.

Conclusion

By following these steps, you can navigate the complexities of obtaining a home loan as a cohousing group. It's a collaborative and binding process, but with careful planning and appropriate guidance, it can be a rewarding and successful endeavor.