How to Buy Someone Out of a House

If you inherit a house or buy it with someone else, you may not be the sole owner of the property. While some people can co-own a home, others prefer to own it outright. In such cases, you’ll need to buy out other people who have partial ownership of the home. This guide will help you understand how to buy someone out of the property.

Understanding What It Means to Buy Someone Out of a House

Buying someone out of a house means purchasing their equity position. Each owner of the house is entitled to a percentage of the home’s value, and each person’s stake grows as the property appreciates.

You have to buy out the other person’s equity position. It’s a significant upfront payment, but once you make the payment, you are the sole beneficiary of future appreciation. Buying someone out of a house gives you more exposure to the property’s gains and losses.

How to Calculate Buying Someone Out of a House

The cost of buying someone out of a house depends on their equity position. If the other person has $300,000 in home equity, you will need $300,000 to buy out the person. However, most people don’t have that much cash sitting around. 

Some homeowners take out loans to buy someone out. These loans come with additional expenses like origination fees and closing costs. You will also have to contend with interest payments. 

How to Calculate House Equity 

Calculating home equity can help you determine how close you are to becoming debt-free on your property. This calculation can also indicate how much money you need to use to buy someone out of a property.

Calculating home equity is straightforward for a sole property owner. You deduct your mortgage balance from the property’s value to arrive at your equity. For example, if you have a $1 million home and a $600,000 mortgage balance, you have $400,000 in equity.

However, if you and another person split the equity, you don’t have $400,000 in equity. Instead, you and the other individual each have $200,000 in equity. Therefore, you have to pay the individual $200,000 to buy them out of the property. It’s up to the other person to accept a buyout. During the negotiation process, the stake can gain value if the home’s value rises.

How to Buy Someone Out of a House in 5 Steps

If you want to buy someone out of a house, you can follow these steps.

Step 1: Determine The Other Person’s Equity

Calculating the other person’s equity will give you a target for raising funds. You don’t want to fall short during the fundraising process. A homeowner should get an appraisal so they know the current value of the property.

Step 2: Come to an Agreement

You should agree with the other owner to initiate a buyout. You need the other person’s permission to proceed with the rest of the steps and reach a formal conclusion.

Step 3: Get the Capital

Homeowners have to raise capital to buy someone out of their home. You can contact your lender, family, friends, and other people who can raise cash for you. 

Step 4: Get an Attorney

An attorney can guide you through the process and help with the closing. This ensures the contract doesn’t have any hidden surprises.

Step 5: Recording the Transaction

After the closing, the transaction will be recorded, updating the ownership status. The person selling their equity may have to pay capital gains taxes and other costs. You may also be subject to additional costs like transfer taxes.

How Long Does It Take to Buy Someone Out?

The buyout process can take four to six weeks once you reach an agreement. Convincing the other party to sell their stake can take longer. Any communication delays can significantly prolong the process, and some people may change their minds a few times after initially wanting to sell. The home can also gain value, which may require another appraisal. 

What Happens if You Paid More Than the Other Owner?

If you paid more than the other owner, you still have to negotiate with them. However, you won’t have to raise as much capital to buy that person out of the home. The other person has to deed their portion of the property. 

Other Options for Buying Someone Out of a House

Not everyone can raise enough cash on their own to buy someone out of a house. These are some of the other options you have to tap into your home’s equity or gain ownership.

Refinance the Mortgage, then Buy Out the Home 

Getting a cash-out refinance can give you extra capital to buy out the home. You will end up with a higher mortgage balance, but it will be your mortgage alone. The other person must agree to give their stake for this method to work. You cannot use a refinance to buy someone out of the property if that person does not consent. 

You don’t have to use your current mortgage lender to get a refinance. It’s a good idea to shop around and compare the best refinance mortgage companies before making a decision. You can end up with better rates and terms by assessing your options. 

Ask for Help From Your Family

Your family may have extra capital lying around that they can use to help with the buyout. Family members may also have equity from their own homes or the flexibility to take out personal loans. Having family behind you will make it easier to raise enough funds for the buyout.

Sell and Split the Proceeds

If a buyout doesn’t work, you and the other person can agree to sell the property. You will then split the remaining cash after you pay off the mortgage with the proceeds. You must both agree to sell the property. Asking family and friends if they know someone who is looking for a home can result in a quicker sale.

Getting Full Ownership of Your Home

It’s possible to buy someone out and get all of the equity in your home. You and the other party must reach an agreement, and then it’s up to you to raise funds. Attorneys and lenders can take you to the finish line. The process takes time, but it can be worth it and reduce stress in the future.

Frequently Asked Questions