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What Is Joint Tenancy?

6-Minute Read
Published on May 4, 2021
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As you review the steps to buying a house, you may wonder if your finances are strong enough to enable you to make this life-changing purchase. Your credit score may be sufficient to qualify for a mortgage, but you may not have enough money saved to make a down payment and afford the closing costs. If this situation describes your current financial circumstances, you may want to consider purchasing property with another person under joint tenancy.

If you're single, teaming up with someone can enable you to become a homeowner earlier in life – though shared ownership of a property can sometimes be tricky to navigate. Read this article to learn about one of the more common co-ownership structures: joint tenancy. You can learn what it is, how you can benefit from it and what issues you may run into.

Joint Tenancy Definition

Joint tenancy is a specific type of ownership in which two or more parties have equal rights to, shares of and responsibilities for real or personal property. This type of legal ownership agreement can be utilized by married or unmarried couples, relatives, business partners or close friends. Unlike other co-ownership arrangements, joint tenancy includes the right of survivorship, which prevents interest in the property from being inherited by co-owners’ heirs.

How Does Joint Tenancy Work?

To begin joint tenancy, all parties must enter the co-ownership agreement at the same time through the same deed. The deed specifies that the joint tenants own an equal amount of interest in the purchased property and are thus equally liable for it financially.

Since the joint tenants have equal interest, the property cannot be sold without all parties’ consent. Instead of selling, a joint tenant can choose to transfer their interest to another party. When interest is transferred, the new party may not enter the joint tenancy.

Rather, the joint tenancy agreement must be terminated, and the new individual must enter a new co-ownership arrangement, known as tenancy in common, with the remaining tenant. (This alternative co-ownership structure will be discussed later in this article.)

Unlike other co-ownership structures, joint tenancy arrangements include the rght of survivorship, which means that if a joint tenant dies, the surviving owner(s) automatically gains ownership of the property. Therefore, the property cannot be passed down to the heirs of the joint tenants.

This aspect of the arrangement is unusual, as normally the deceased’s will must go through probate, a process in which an individual’s will is validated by the court system. In the event that all joint tenants die, the property will go through probate to determine who the new legal owner should be.

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What Can Joint Tenancy Apply To?

Generally, people think of joint tenancy in relation to real estate property. However, joint tenancy arrangements can be applied to the ownership of a variety of different assets. Let’s take a quick look at how it works in the ownership of real estate, personal property, bank or brokerage accounts and businesses.

Real Estate

Individuals typically use joint tenancy to purchase real property, which is land and any real estate property that is situated on it. In this arrangement, joint tenants share equal interest in the real estate and are equally responsible for paying off any debts on the property.

Personal Property

Personal property is considered any possession or asset besides real property. Joint tenants may co-own automobiles, jewelry, artwork, antiques, bonds, etc., and share the value of the items equally.

Bank And Brokerage Accounts

Bank and brokerage accounts can also be owned by multiple parties through joint tenancy. Through this co-ownership structure, joint tenants have equal right to the funds, and can buy and sell securities at their disposal. This allows widowed spouses to have full access to all accounts without needing to have the deceased’s will probated.

Business Ownership

Multiple parties can own a business together as joint tenants. Since joint tenancy comes with the Right of Survivorship, the death of one owner automatically provides the surviving joint tenant with full ownership of the company.

The Difference Between Joint Tenancy And Tenancy In Common

Joint tenancy is not the only way that two or more individuals can jointly own property. Depending on the circumstances and the relationship between the parties involved, individuals may instead wish to enter a tenancy in common agreement. Although these two terms sound somewhat similar, there are important distinctions between them.

Let’s look at the differences between joint tenancy and tenancy in common arrangements.

Conditions Of Co-Tenant Agreement

Joint Tenancy

Tenancy In Common

 

Ownership Of Property

Co-tenants must hold an equal amount of interest in the property.

Interest can be split 50/50, but ownership may also be divided into different percentages. Regardless of how interest is divided, no co-tenant can claim any specific portion of the property.

 

Gaining Ownership

Co-tenants must all gain ownership of the property at the same time on the same deed.

Co-tenants can enter the co-ownership agreement at any time.

 

Selling The Property

The property may not be sold without the consent of all co-tenants. However, a co-tenant may transfer their share of the property to another party without permission. (Once the property is transferred, the joint tenancy is terminated, and co-tenants enter a new agreement as tenants in common.)

Co-tenants can sell or transfer the property without each other’s consent.

 

Financial Responsibility

Co-tenants share equal financial responsibility. If any loans are taken out against the property, all co-tenants are responsible for paying them back.

A co-tenant may use their own portion of the property as collateral and be solely liable for the debt.

 

Inheritance Of Property

Joint tenancy includes the Right of Survivorship, so the property automatically transfers to the surviving co-tenant(s). Only upon the death of the last surviving co-tenant, may the property be passed down to that co-tenant’s heirs.

Tenancy in common does not include the Right of Survivorship, so heirs may inherit the deceased co-tenant’s shares in the property.

The Pros And Cons Of Joint Tenancy

When deciding whether to enter a joint tenancy agreement, it’s crucial that you have a full understanding of the pros and cons involved. Let’s start with the pros. 

Pros

Affordability: Joint tenancy can make homeownership a more affordable option for those who may not have the funds or credit necessary to qualify for a mortgage and purchase a house. To qualify for a conventional loan, borrowers typically need a credit score of at least 620 and a DTI below 50%.

When seeking to purchase a property as a joint tenant, co-tenants still need to have a high enough credit score. However, when it comes to DTI, the income and debts of all co-tenants are combined, which can make it far easier to obtain a mortgage and even score a lower interest rate.

Shared responsibility: Owning real estate is not easy, but joint tenancy minimizes the headaches involved in homeownership. All the responsibilities and financial burdens involved in being a homeowner can be a lot to handle on your own. But with a co-tenant, all obligations are equally divided and far more manageable.

Right of survivorship: Joint tenancy enables individuals to avoid the lengthy process of probate should their co-owner pass away. Probate avoidance means that assets are immediately distributed to the living co-tenant – even if the deceased did not have a will written out before the time of death.

Although there are quite a few benefits to being a joint tenant, there are certainly some drawbacks that can complicate your investment.

Let’s review the cons.

Cons

Financial troubles: Life changes can greatly complicate this co-ownership structure. If a co-tenant runs into financial troubles after purchasing the home and cannot afford to keep up with their share of mortgage payments, the other co-tenant(s) is still on the hook and responsible for preventing the property from going into default.

Divorce or separation:  If a married couple decides to purchase a home as joint tenants, the event of their divorce or separation could further complicate any future legal battles. A divorced co-tenant is still responsible for their former spouse’s share of debt, and neither party can decide to sell the property without the express permission of the other.

Inheritance: Remember, with the right of survivorship, inheritance can be a major issue. Regardless of the deceased’s wishes or will, their shares will automatically be bestowed upon the surviving co-tenant(s). Therefore, co-tenants are helpless when it comes to passing their shares onto their heirs.

The Bottom Line: Is Joint Tenancy Right For You?

Joint tenancy is one type of co-ownership structure that can enable you to purchase real estate sooner, and to potentially borrow funds at a lower interest rate. However, you must keep in mind that joint tenancy is all about sharing responsibility.

With equal interest in the property and equal responsibility for debts, it’s crucial that you fully trust the individual(s) with whom you enter a joint tenancy arrangement.

If you’re interested in learning more about managing your assets and protecting your financial wellbeing, visit Quicken Loans® Learning Center.

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Call our Home Loans Experts at (800) 251-9080 to begin your mortgage application, or apply online to review your loan options.

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Victoria Araj

Victoria Araj is a Section Editor for Quicken Loans and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.