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Understanding different ownership types when getting a mortgage on a residential property.

 

When you invest into a property and apply for a mortgage on the property, if you are going to be the only person on the title of the house, then everything is simple for you. However, that's not usually the case. Here we will discuss the common ownership types on a residential property.

Sole Ownership - There's only one owner on the mortgage and the title of the property. The owner has full permission to decide on anything to do with the property, such as selling the property. One of the biggest drawback of this type of ownership is that if the owner passes away, the transfer of the title will be complex and the owner's heirs must go through a probate process that will often involve some administrative costs as well as tax implications.

Joint Tenancy - This is by far the most common ownership type among families. In this type of scenario, two or more owners, with equal rights, are placed on the mortgage and the title of the property. A key advantage of this type of ownership is if one of the owners passes away, the ownership of the property automatically gets passed on to the surviving owners. This is called the right of survivorship. A drawback of this type of ownership is in order to do anything financially with the property, such as getting an equity line of credit on the property, or selling the property…etc., the owners must all agree to and put their signatures on these decisions. This type of ownership grants equal use and rights on the property.

Tenancy in Common - Similar to Joint Tenancy where there will be two or more owners on the mortgage and title of the property, but with the major difference that the ownership of the property can be split into different percentages among the owners, and each owner will have some flexibility to utilize what they have on the property and make some financial decisions themselves. For example, if a $1M property is fully paid off and one of the spouse has 40% ownership of the property, he or she can apply for a loan using $400,000 as an asset, or sell his/her portion of the property. The right of survivorship does not exist in this type of ownership. If the spouse with 40% ownership of the property passes away, the ownership can be passed on to anyone specified as the heir, who would then automatically enter into the tenancy in common agreement in place of the deceased. This type of ownership does not grant equal use and rights on the property.

Tenants by the Entirety - This type of ownership usually describes to the scenario when a husband and wife are granted equal shares and income generated by a property. The right of survivorship is offered in this type of agreement. And similar to Joint Tenancy, in order to do anything financially with the property, such as getting a loan or selling the property, both the husband and wife must agree to such decisions. If the couple divorces, the agreement automatically becomes Tenancy in Common.

The above are the common ownership types for residential properties. More options are available for commercial properties but are not mentioned in this article.