Joint tenancy: Definition, pros and cons

Have you ever thought of buying a vacation home or investment property with a partner, spouse, friend or relative? You might be more interested in looking at listings for mountain getaways than learning about the ways that the law recognizes forms of co-ownership, but if you want to protect your relationship with your co-owners while also protecting your rights, you’ll want to know how joint tenancy works.

Read on to learn about a joint tenancy and what it entails.

What is joint tenancy?

Joint tenancy is a legal term for an arrangement that defines the ownership interests and rights among two or more co-owners of real property. In a joint tenancy, two or more people own property together, each with equal rights and responsibilities.

While joint tenancy can apply to personal property, business ownership, bank and brokerage accounts, it’s most used for real estate investments. When purchasing property, joint tenancy provides all parties with equal rights to and responsibilities for the real estate purchased.

Although joint tenants receive the same amount of interest in the property, there are limitations to using their shares. The most critical condition of this type of joint ownership is that it includes the right of survivorship, which prevents co-tenants’ heirs from inheriting their shares of the property.

What are ownership rights?

We tend to think of property ownership in binary terms: You either own it or don’t. But in reality, property ownership rights can take many forms, depending on what rights a person owns.

There are a variety of legally recognized co-ownership arrangements, like tenancy by entirety and tenancy in common. Joint tenancy is by far the most common, because most people who purchase homes together are married, have a partnership or are related and wish to pass their property to their joint tenant.

How does joint tenancy work?

Joint tenants share an equal interest in the ownership of an entire property. Any tenant can access all parts of the property without limitation or restriction. Joint tenants can be at the property at any time, either together or separately.

The key feature that distinguishes joint tenancy from other types of ownership rights is that the surviving joint tenant(s) acquires the shares held by another tenant upon their death.

What is a joint tenancy with rights of survivorship (JTWROS)?

Sometimes referred to by its full name (joint tenants with right of survivorship) or the acronym “JTWROS," a joint tenancy creates rights of survivorship upon a tenant’s death. This means that when a joint tenant dies, their shares automatically transfer to the surviving co-tenant(s). In fact, from the moment of the owner’s death, rights of survivorship and responsibility for the mortgage vest in the surviving tenant(s).

In the case of a conflict between joint tenancy rights and the deceased’s will, the rights of survivorship win. The property does not go through probate, and the surviving co-tenant(s) immediately gains the decedent's property interest, as well as all mortgage responsibility.

It’s worth noting that if you’re not on the mortgage and the responsibility becomes yours for the payments, you should make them because that will allow you to stay in your home. However, if the home does end up in foreclosure, it won’t reflect negatively on your credit score because your mortgage company doesn’t report credit to anyone who isn’t listed on the note.

The last living co-tenant becomes the sole owner of the property and may include the property in their will and bequeath ownership to their heirs.

How is a joint tenancy created?

Nearly anyone can enter joint tenancy agreements: married or unmarried couples, family members, investment partners or friends. Your real estate attorney can craft a co-ownership agreement that meets the legal requirements in your state or jurisdiction, and is in the best position to make sure that you’re buying exactly what you think you’re buying.

However, certain conditions must be met for a joint tenancy agreement to be made. All co-tenants must acquire equal shares of the property through the same deed at the same time. With their equal interest, joint tenants also share equal financial responsibilities for the property, meaning all co-tenants are liable for any loans taken out against the property.

What if a joint tenant wants to sell their share?

A co-tenant may not sell their shares of the property without the consent of all other tenants. Instead of selling, a joint tenant can transfer their shares to another person.

However, transferring shares terminates the joint tenancy agreement, forcing the new co-owner to enter a new ownership arrangement with the remaining co-tenant(s). The new arrangement, known as a tenancy in common, will be discussed in more detail in the next section of this article.

What’s the difference between joint tenancy vs. tenancy in common?

Joint tenancy is similar to another common co-ownership arrangement called tenancy in common. These two homeownership arrangements may sound nearly identical, but there are several key differences between them. Understanding how joint tenancy differs from tenancy in common can help you decide which arrangement is right for your situation.

Split ownership

While joint tenants must obtain equal shares of the property through the same house title at the same time, tenants in common can split their interests however they like and enter into the agreement at any time.

You can think about this as the co-owners dividing their interest into percentages. In a joint tenancy agreement, two co-owners would each have a 50% interest in the property. With a tenancy in common with two co-owners, one tenant could hold 70% ownership while the other could hold 30%.

Divided financial responsibilities

With a tenancy in common, financial responsibility can also be assumed proportionately. Although joint tenants are equally liable for all debts against the property, tenants in common can use their own shares as collateral and take on sole financial responsibility for loans.

Sale or transfer of property

Another important difference between the two forms of ownership is that, if you enter a tenancy in common, you are not automatically creating rights of survivorship. So, co-tenants can pass the property down to their heirs as an inheritance.

There is also more flexibility when it comes to disposing of the property, either through a sale, gift or inheritance. Unlike joint tenancy, tenancy in common enables co-tenants to sell their interest in the property without the consent of their co-owner(s).

What are the mortgage requirements for joint tenants?

Typically, borrowers must have a credit score of at least 620 and a debt-to-income ratio (DTI) below 50% to qualify for a conventional mortgage loan. But when applying for a mortgage as a joint tenant, co-tenants can combine their income and debts to increase their chances of qualifying for a mortgage.

So, as long as each co-tenant has a strong credit score, they generally have an easier time meeting the DTI requirements and can even be approved for a lower interest rate.

Pros of joint tenancy

Joint tenancy can provide a more accessible entry into homeownership for first-time home buyers and those interested in real estate investing. Let’s go over some of the advantages of entering a joint tenancy ownership arrangement.

Home affordability

The most significant benefit of joint tenancy is that it makes homeownership more affordable. Joint tenancy enables co-tenants to split the down payment and provides them with an advantage when it comes to qualifying for a mortgage.

Equal protections

Joint tenancy also ensures that co-owners can share all responsibilities for paying off debts, maintaining and improving the property and renting it out (if the property is used to generate rental income). The fact that co-tenants possess equal shares of the property gives every party incentive to do their part to protect their investment.

Ability to avoid probate court

Since joint tenancy includes the rights of survivorship, co-tenants also benefit from the ability to avoid probate, the lengthy legal process that the court system uses to validate wills. Instead of going through the probate process, the surviving co-tenant(s) have immediate access to their shares of the property regardless of whether the deceased owner had written out a will.

Cons of joint tenancy

The rigid conditions of joint tenancy may protect you if your co-tenant(s) attempts to take advantage of your investment. Still, those same conditions can make it challenging for you as well. Here are some potential disadvantages of co-owning a property through a joint tenancy agreement.

Added responsibility

If a co-owner loses their job or runs into financial difficulties, the other parties involved in the agreement are responsible for continuing to make all mortgage payments and preventing the property from going into default.

Potential for relationship strains

If a change occurs in the relationship between joint tenants, difficulties can also arise. Since all decisions regarding the property must be made jointly, it can be challenging to navigate disagreements. No one can sell the property or their shares of the property without the express permission of all other co-tenants.

And, with the rights of survivorship, only the last living co-tenant can pass the asset onto their heirs.

Joint tenancy FAQs

Still navigating the legal ramifications of sharing homeownership with another person? We’ve answered a few frequently asked questions to help you determine whether joint tenancy is right for you.

When do I need joint tenancy?

You may want to sign a joint tenancy agreement if you’re interested in co-owning property with another party, like a spouse, family member or business partner. When the co-owner of a property dies, joint tenancy ensures that the property is transferred to the surviving owner(s). They will then assume full ownership of the property.

If you want to co-own a piece of property, you don’t have to become a joint tenant. There are other options available for co-homeowners, including tenancy in common. Weigh the pros and cons to determine whether a joint tenancy arrangement is right for your situation.

What forms of property can be held in joint tenancy?

In most cases, tangible and intangible property types can be held in joint tenancy. The property ownership types may include real estate, bank accounts, cars and investments.

Should a married couple be joint tenants or tenants in common?

Joint tenants and tenants in common are connected but have differences in what each arrangement can do for couples. Tenancy in common can be valuable because it shows the couple’s property that they own together while still allowing them to choose who to give it to after they die.

Although this can be helpful, it does not guarantee a smooth transfer of rights. For this reason, joint tenancy is usually a better plan for married couples because when an owner dies, the property is automatically transferred to the surviving spouse (who is also the joint owner of the property).

What happens when joint tenants separate?

When joint tenants separate, they must determine how to divide their property. Splitting their shares has to be done together, and both must agree on the terms. Once they decide on the provisions, each joint owner holds a separate interest in the property.

What happens if one person wants to leave a joint tenancy?

To leave a joint tenancy, a person must give a valid notice, which is a written document stating that they’re ending the partnership. Similar to when joint tenants separate, both partners must agree upon the conditions, and then everyone in the joint tenancy must leave the property once the term is over.

The bottom line: Is a joint tenancy right for your estate plan?

Joint tenancy is a co-ownership arrangement that provides all parties with equal interest in and responsibility for the real estate purchased. Although this title structure can aid individuals in qualifying for a mortgage and purchasing property earlier in life, it’s crucial to think carefully about how you might want to sell or transfer the property later on.

If you’re interested in buying a home as a joint tenant, start the mortgage approval process or give us a call at (833) 326-6018 today.