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Buying a home makes the property yours to live in, to renovate, to rent, to refinance, and eventually to sell or transfer to your heirs, right?
In reality, those rights may depend on your ownership interest in the property.
Whether you're buying your first home, partnering with others to buy an investment property, or adding a family member to your existing deed, your type of ownership interest can affect your rights and responsibilities.
Knowing how ownership interest works when you buy the home could help dodge a massive headache later.
What is ownership interest in a property?
Ownership interest shows your legal stake in a piece of real estate. This interest grants specific rights to possess, use, modify, or sell the property. When there's more than one owner, ownership interest determines how the owners share the property.
Ownership interest also divides the responsibilities of ownership. It can affect how much owners are responsible for maintenance expenses and for making major decisions about improvements or sales.
The type of ownership interest you choose also affects your mortgage options, tax obligations, and what happens to the property if you pass away. For example, some arrangements offer automatic inheritance benefits, while others require probate proceedings to transfer ownership.
Types of ownership interest in a property
Here are some common types of ownership interest in real estate:
Sole ownership
Sole ownership puts complete control in one person's hands. One owner makes all decisions about the property without needing approval from anyone else. The sole owner is also solely responsible for all improvements, taxes, insurance, and other obligations.
This structure works best for single individuals, divorced homeowners, or married people in states that allow separate property ownership. This does not include community property states
The main drawback: Sole ownership typically requires probate when you die, which can delay property transfer to your heirs and create additional legal costs for your estate.
Tenancy in common
Tenancy in common allows unequal co-ownership splits between multiple parties. You might own 60 percent while your business partner holds 40 percent. Or property could be divided three ways with different percentages based on each person's investment.
When you die, your ownership share passes to whoever you designate in your will and not automatically to your co-owners. This makes tenancy in common popular for:
- Business partnerships buying investment properties
- Family members pooling resources for real estate investments
- Married couples who want their property share to go to children from previous marriages
Each tenant in common can sell their portion independently, though finding buyers for co-ownership can be hard.
Joint tenancy
Joint tenancy requires equal ownership stakes and equal rights. If the property has two owners, each one owns exactly 50 percent. If three people own the property, each holds exactly a third. All owners must agree on major decisions like selling, refinancing, or significant renovations.
The key feature here is right of survivorship: When one joint tenant dies, their share automatically transfers to the surviving co-owners without going through probate. This makes joint tenancy attractive for:
- Married couples who want seamless property transfer
- Family members who plan to keep property within the family
- Close business partners with long-term investment goals
Joint tenancy offers probate protection but limits your ability to pass your share to specific heirs through your will.
Tenancy by entirety
Tenancy by entirety works only for married couples. It allows both spouses to hold 100 percent of the real property.
This works because the law sees the married couple as one legal entity. When one spouse dies, the surviving spouseretains 100 percent ownership interest.
Tenancy by entirety requires a legal marriage, so if the marriage ends in divorce or annulment, the ownership interestdissolves too. It typically reverts to tenancy in common.
Living trust ownership
A living trust is a legal entity that holds assets on behalf of the original owner. Property in a trust is owned by the trust and not by any individual or group of individuals. A trustee oversees the trust, and beneficiaries of the trust benefit from trust assets.
The big advantage with living trust ownership: The trust continues to own the property after the person who started the trust dies. This avoids the probate process entirely.
Some property owners can claim tax benefits when they hold property in a living trust.
What rights come with an ownership interest?
Ownership interest creates legal rights that go beyond having your name on a deed. These rights determine what you can do with your property and how much control you have over major decisions.
Possession rights
Possession rights give the legal authority to occupy the property and control who else has access. The owner with possession rights can live in the home, rent it out, or keep others off the premises, subject to local laws and regulations.
Usage rights
Usage rights allow owners to modify, improve, or develop the property as needed. Want to renovate the kitchen, add a deck, or convert a garage into living space? Your ownership interest typically grants these privileges, though you'll need to follow building codes and zoning requirements.
Transfer rights
Transfer rights allow owners to sell, gift, or otherwise transfer the property to others. Sole owners can make these decisions independently; co-owners often need agreement from other parties depending on their ownership structure.
Transfer rules vary by location. State and local regulations govern how owners can sell, gift, or transfer your ownership interest to others. A real estate attorney or title company can guide you through the specific requirements in your area and ensure proper documentation.
Compensation protections
Ownership rights also include compensation protections if government entities take your land through eminent domain. Your ownership interest entitles you to fair market value for any property seizure.
Inheritance rights
Joint tenancy includes automatic survivorship rights, meaning your share passes directly to surviving co-owners without probate. Homes placed in a living trust should also bypass the probate process.
Sole ownership and tenancy in common typically require probate proceedings, with property passing according to your will or state inheritance laws.
Creditor protection
Some ownership structures offer creditor protection benefits, particularly tenancy by entirety for married couples, which can shield property from individual debts in certain situations.
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How does ownership interest work in real estate decisions?
When you share ownership of a property with others, major decisions typically require everyone's agreement. Typically, all owners must agree even when the distribution of ownership is not equal.
So what's the benefit of owning a larger percentage of the property? These percentages divide the financial responsibility and financial gain from the property.
Someone who owns 75 percent of a home will claim 75 percent of the profit when the home sells or rents. Likewise, this 75 percent owner will usually pay 75 percent of the home's taxes, insurance, and maintenance fees.
How ownership interest impacts mortgage transactions
Ownership structure affects how a property can be financed. Different ownership types present different levels of risk to the lender, and risk impacts mortgage eligibility.
Here's what to know:
Home title ownership
Properties with complex ownership interests may not be eligible for mortgage financing. Likewise, members of a co-ownership arrangement may not allow a new owner to use a mortgage loan to buy a portion of the property.
A mortgage lender will need to understand a property's ownership structure before financing the property. That's one reason real estate transactions include a title search and a title insurance policy.
It's easiest to finance a property whose ownership structure provides for sole owners and tenants by entirety but it is possible to finance a property with tenants in common and joint tenancy.
Even when homes have more complex deeds, Better's AI-driven mortgage process can simplify the application and closing process.
Business ownership
Mortgages for primary residences will not finance a business property. Instead, borrowers will need investment propertyloans. To approve these types of loans, lenders typically need:
- A statement showing your exact business ownership percentage (such as Schedule K-1)
- Two years of tax returns including Schedule E for other income and losses
- Personal tax returns and W-2s
- Business tax returns and profit-loss statements
- Schedule C, Form 1120S, or K-1 depending on your business structure
These requirements help lenders assess your income stability and business ownership risks.
Condo ownership
Condo purchases can be more complicated because of the shared ownership of common areas and amenities. Lenders evaluate both the borrower's financial qualifications and the condo association's financial health.
The condo association has to check out because the areas of the complex it manages impact the value of each condo unit.
First-time homebuyer programs
First-time homebuyer programs have ownership history requirements. If you've held any ownership interest in propertywithin the past three years, you typically won't qualify as a first-time buyer. This is true even if you only owned a small percentage or sold the property.
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Does the mortgage lender own part of the home?
Depending on the equity in the home, a mortgage lender may technically own the majority of the home. But the lender holds only a security interest in the home. This interest gives the lender the legal right to foreclose and take full possession if the loan defaults.
Even when a home is fully financed, the lender will not claim ownership unless the borrower stops making payments and defaults on the loan. The lender retains the right to foreclose until the home is paid off completely.
Other ownership interest FAQs
Here are some other frequently asked questions about property ownership interests.
How can I prove ownership interest?
Property deeds serve as the primary proof of ownership interest. This document, recorded with a county clerk's office, establishes all legal claims to the property. Title documents and county records provide additional verification of ownership status.
Properties with multiple owners may require extra documentation. Partnership agreements, LLC operating documents, or tenancy agreements help clarify each party's ownership percentage. A real estate attorney or title company can verify your ownership status efficiently, especially since title verification laws vary by state.
Can I transfer my ownership interest?
You can transfer your ownership interest to other individuals or entities, though the process depends on the ownershiptype. Tenancy in common allows co-owners to sell an individual share while other owners keep their interests. Joint tenancy typically requires all owners to agree before any transfer occurs.
Most lenders prefer financing entire properties rather than partial interests. Coordinating with co-owners often simplifies the selling process and attracts more potential buyers. Transfer methods vary based on local regulations, so consulting a real estate professional helps ensure proper completion.
Does partial ownership count as homeownership?
Partial ownership counts toward your homeownership history for mortgage qualification purposes. This matters when applying for first-time homebuyer programs, which typically require that you haven't owned property in the past three years.
Even owning 25 percent of a property disqualifies you from first-time buyer benefits. Lenders consider any previous ownership interest when evaluating your application, regardless of the percentage you owned or how long you held the interest.
Take control of your property ownership
Property ownership interest shapes the future of a property beyond the life of its mortgage loan. Fortunately, most home buyers don't need complicated ownership structures.
When a new property will have more than one owner, a simple and transparent mortgage process will help all ownerstrack the loan's progress toward approval.
Better mortgage loans offer this level of transparency, beginning with a fast preapproval process that does not show up in the borrower's credit history.
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