Co-buying is the new Gen Z path to the American dream. There’s a lot to unpack before agents can begin to consider it as a solid revenue stream, but the ones who commit to the education might find measurable success specializing in non-traditional, Zoomer residential real estate.
Friends and family
Gen Z co-buying is designed to address affordability issues, since many Gen Z buyers are looking for mortgage partners, not spouses.
A 2024 survey found that more than half of aspiring homeowners say their income isn’t high enough to afford a down payment and closing costs. Thus, opting for the nontraditional approach of co-buying — pooling resources with a friend, sometimes a relative — to buy a home together makes sense for this group.
Driven by financial issues, co-buying quadrupled between 1971 and 2021 among multi-generational households, according to Pew Research in The Wall Street Journal.
It is estimated that Generation Z includes nearly 70 million young people. Born between 1996 and 2012, the older members are in their 20s. They are a pragmatic population, having suffered the sting of living in low-income households post-2008 Recession more than any other generation, making them ripe for the real estate industry’s attention.
According to National MI, a private mortgage insurance company, and FirstHome IQ, a nonprofit focused on financial literacy and homebuyer education, about one-third of adult Gen Zers say they are open to pooling funds and purchasing a home with friends or family, while only 18 percent of millennials say they are open to co-buying as a strategy.
Gen Z wants out of the house.
The answer for many is teaming up with a friend. Co-buying and the pooling of resources to actually pull it off have led to the creation of management companies like Nestment, CoBuy and Pairadime, which aim to guide people through the co-buying process.
Co-buying involves two or more friends, family members or romantic partners. When those relationships become financial and residential partnerships, things can go wrong without structure.
The financial traits of Gen Z
Gen Z is the most educated generation yet:
- Practical, prioritizing trade schools and certifications over higher ed
- Hard-working, flexible and purposeful, many favor freelance and gig work
- Reshaping the workplace and the homescape with a focus on work-life balance
- Proactive, using technology and social media as a ubiquitous means to broaden their knowledge, access resources and make wise purchasing decisions.
- Financially mindful, having witnessed their parents’ struggles through the Great Recession and the stress of the rental market
- Value security and the stability of conservative spending and smart investments
It is their pragmatism that could lead Gen Zers to explore and evaluate a range of lifestyle options before settling on renting or attempting to purchase a property solo, which may be less desirable than what they want or where they want.
As consumers, Gen Z is heavily influenced by the digital world. They rely on social media platforms to make informed purchasing decisions. Agents would be wise to cast their social marketing nets over Instagram, YouTube and TikTok, where they are known to spend many of their waking hours.
Architecting co-homeownership
When structuring a co-buying strategy with the best odds of success for unrelated parties, there are some challenges to overcome to sustain communal living. To avoid them, advise your co-buyer clients to:
- Have a stable relationship from the start
- Approach life and money values similarly
- Establish and respect boundaries and privacy
- Agree on task-sharing, regular maintenance, upkeep and record-keeping
- Create an emergency fund for unexpected repairs
- Set up written terms of dissolution for when priorities change or hardship occurs
- Structure the exit plan with the help of a lawyer or a notary
Lender and legal
Lender scrutiny: Qualify together
Each and every co-borrower on government-backed loans (FHA, VA, USDA) and conventional loans backed by Fannie Mae must meet credit, income, occupancy and in the case of the VA, veteran eligibility requirements. The number of co-owners rests with the lender.
Conventional loans for co-borrowers backed by Fannie Mae
Although qualification includes combined income as well as credit, the conventional loan affords unrelated co-owners the most flexibility.
FHA loans for occupying co-borrowers
The FHA loan, another good option, features a lower down payment, 3.5 percent. Occupying co-borrowers take title to the property and are obligated on the mortgage.
VA-backed loans for co-borrowers and non-VA co-borrowers on VA-backed Loans
There are two types of VA-backed loans for co-owners / co-borrowers. One meets traditional VA eligibility and guarantees the loan while the other, a Joint VA loan, affords a co-ownership path if the other co-borrower does not meet veteran or spousal eligibility. This Joint VA loan does not guarantee the entire portion of the loan.
Credit scores
FICO credit score
Traditionally, the only go-to credit model for mortgage underwriting, FICO impacts borrowing for everyone if one co-borrower’s score is significantly lower.
VantageScore 4.0
Newly approved alternative credit scoring model by the Federal Housing Finance Agency (FHFA) provides buyers a boost to qualify for a mortgage or reduce the cost of the loan. This scoring model was developed by Equifax, Experian and TransUnion and includes rental, utility, and telecom payments, and Venmo history.
The co-buying agreement
Because unrelated parties do not share the same legal rights and protections as married couples under state-by-state marital law, it is advisable for a co-buying or co-ownership agreement to be in place, prepared by an attorney, to define the relationship:
It defines the choice of the deed:
- Tenants in common, allowing for equal or unequal percentages of ownership, are commonly used by unrelated parties
- Joint tenancy, allowing co-owners with the same interest, typically married couples or other related parties, the right of survivorship, where the surviving co-owner receives the deceased owner’s share upon death
It defines the financial split, 50/50, or any specified split of how mortgage, taxes, insurance, utilities and maintenance are paid.
It defines default. All parties are equally responsible, each one legally on the hook for full payment. All credit scores suffer, regardless of whether only one party is at fault due to job loss, other circumstances or an unwillingness to pay.
It defines an exit strategy, achieved through a buy-out formula, if / when one party wants out due to a lifestyle change and calculated through a professional appraisal and/or a CMA (comparative market analysis) provided by a Realtor, or if contested, through a court-ordered sale by partition, a division of a jointly-owned property.
Profoundly American
Expectations are high for Generation Z as they come of age. History and behavior foretell their story — pragmatic, hardworking, children of their parents’ financial struggles — ingredients that will meld to form the future protectors of property rights, home and land. Through co-buying, a home purchase is no longer just a dream — the American dream — but America’s New Reality.
Annette DeCicco is a real estate broker and director of growth and development at Berkshire Hathaway HomeServices Jordan Baris Realty in Northern New Jersey.
