Important takeouts:
You can buy a house with friends and multiple friends. Buying a home with friends makes both home buyers and homeowners more affordable, from sharing upfront costs to splitting monthly bills. Clear communication, careful planning, and written legal agreements are important to avoid financial issues and relationship tensions. Choosing the right co-buyer and setting clear expectations about money, household responsibility and exit plans will help keep things smooth.
High home costs may be slowing down your home buying, but buying a home with friends is a sensible way to break into homeownership. While professionals like resource pooling and sharing costs are attractive, there are many important things to consider before making the leap. Whether you’re looking for a home in Eureka, California, or leaving your apartment in Boulder, Colorado and upgrading from a rental in Madison, Wiscons, this Redfin article covers the pros, cons and general questions about co-ownership.
Can I buy a house with my friends?
absolutely! Everyone can afford to buy a mortgage payment and as long as they can meet the lender’s requirements, they can buy a home with friends and groups of friends. In fact, housing costs are increasingly a popular choice as affordability is a major challenge for many people. Pooling resources with trusted friends can help split down payments, mortgages, property taxes and maintenance costs, making homeowners more accessible than you do.
As friends do not have automatic legal protections like spouses, it is important to create a clear, written agreement to define the rights and liability of everyone and to prevent future disputes.
Pros and cons of buying a house with friends
There are many things to think about before buying a house with friends. It’s fun and has its perks, but it has potential drawbacks that shouldn’t be overlooked.
Strong Points
Enrolling homeowners early: Partnering with trusted friends is a common way for people to get into homeownership and real estate investments early. Start building equity: One of the major professionals for buying a home is the opportunity to build capital into your investment. While monthly rental payments are an uncollectable cost, buying a home with a friend can help you start building your investments faster, in order to share more profits when you are ready to sell. Improved purchasing power: Joint ownership allows for more options than you can afford. In addition to qualifying for a better loan, features such as greater space, better locations, and more amenities will be available for multiple income. Easier mortgage eligibility: It helps couple average income and credit scores when reviewing applications. If you and your friends both have good credit, you could be approved at a better interest rate. Large Down Payment: Multiple income will allow you to create larger down payments that may prevent you from having to pay additional private mortgage insurance (PMI). Shared cost of homeownership: Going alone is viable. Buying a home with friends gives you many opportunities to reduce the costs associated with homeownership. It’s not just the mortgage you share. Property taxes, utilities, regular maintenance, and homeowner insurance can all be split up. Supporting the whole process: The road to homeownership can be stressful, especially if you are using it yourself. Having friends with you to help with complexity, relieve stress when you need a break, and go out on the latest interior design trends, even helps ease the process and make it fun.
Cons
One person’s credit affects everyone. Whether you’re one best friend or three college roommates, no matter how high your score is, only one bad credit score can have a negative impact on the overall group rate. Financial tension: Unlike rental agreements, if a friend fails to pay shares on a mortgage, they are burdened with ensuring that the payment is met. This can seriously reflect your own credit score and make it difficult to apply for future loans. Impact on debt-to-income ratio (DTI): Splitting your mortgage with a friend will save you money, but the lender will consider your entire mortgage obligation to be your sole responsibility. This can make DTIs look much higher and increase borrowing costs such as credit and other loans. Complex Exit: If one of you is ready to move in front of the other, it can put you in a difficult place. You may need to refinance your mortgage, buy someone else from the percentage of your home, or sell your home if you can’t afford the costs yourself. Tested Friendship: No matter how close you are to someone, buying a house together can put a lot of strain on the relationship. Details, financial troubles, and even differences in opinion about different lifestyles can throw a wrench at any friendship.
How to buy a house with friends
Buying a property with a friend includes some important steps and considerations. Here are some tips to help you get started:
1. Carefully choose your friends
This is definitely the most important step in the process. Choosing someone to co-own your home takes your roommate contract to a whole new level. You will not only share your living space with this person, but you will also share your finances and responsibilities. Ask questions directly and give an honest answer.
There are a few important topics from the beginning.
Current Financial Status: Cover your income, debt and credit scores as well as budgets for both the owner’s purchase and the recurring expenses of the entire ownership. Goals and Timeline: You need to make sure that you are tailoring both your goals and timeline. What do you each want in your home? How long are you planning to live in it? What happens when one or both want to move? Lifestyle and Responsibility: In contrast to rental, lifestyle compatibility is very important when buying a house with friends. You’ll want to dig into the topic of top roommate agreements and visit the same page to avoid potential disagreements.
2. Determine how to divide ownership
There are several ways to divide property ownership, but these are the two most common.
Joint Lease Rights: This legal arrangement gives each owner an equal right and responsibility to the House of Representatives. There are also certain rights to the right of survival. If one co-owner dies, the surviving co-owner automatically inherits the property. Tenant-in-Common (TIC): On the other hand, tics allow you to determine the same or different percentage of ownership between each owner. These percentages are left to the heirs or beneficiaries of each owner, not to the remaining owners.
3. Determine the property type
Buying a house with friends may mean many different things. Are you thinking about starter condos, big yards for pets to share, or multi-family property as an investment? Work with your goals, essentials and breakers before you begin your house hunt. Seeing your dream home is definitely a fun part of the search process, but don’t neglect to be serious about what you are looking for and what you can realistically afford.
4. Dividing responsibility
Tell your friends about how you want to divide your household responsibility. Owning and maintaining a home takes a lot of time and energy. Think of strategies that will make you feel satisfied with the amount you are contributing to your home. Compromise and teamwork are extremely important when buying a home with friends, as each person has their own strengths, schedules and preferences.
5. Future plans
Continue your initial conversation about goals, timelines and lifestyles by creating solid plans for changes that may occur along the way. The more you plan ahead, the less stressful you will be when unexpected things happen. Life changes – jobs, relationships, or family needs – can plan plans. If you need to move, discuss how you handle things. Do you sell a house or a refinance so that one person holds the title? How do you divide costs, benefits and liability?
6. Put everything in writing
In the world of homeownership, you don’t have to read the details briefly. And no matter how much you trust your friends, make sure you get everything in writing. Seek expert help and draft a legal agreement that works for your particular situation and covers each detail of ownership, liability, exit strategies and what you need.
Buy a house with friends: Is that the right one for you?
Regardless of what you’ve studied, buying a house with a friend is primarily a personal decision that you need to think carefully about. It’s great that your friends are going through the home viewing process, but it can also complicate things. Talk thoroughly with your friend (or friends) about whether this is the right choice.
FAQ
Q: Is it wise to buy a house with friends?
It can be a wise move, but it depends heavily on whether you are both physically, mentally and financially co-owner. Buying a home is a huge commitment in itself and can be more complicated with the people involved in the process. Ultimately, the decision to buy with a friend comes down to what you feel is right for you.
Q: How can I divide costs fairly?
Every person’s situation is unique, so it’s important to start by having an open discussion about your finances and what you can each contribute. You may decide to split the costs into 50/50, split them based on income, or rate them according to the percentage of ownership. Once you agree to the plan, add it to the written record.
Q: How much do I need to share my personal finances?
Regardless of what the lender may need to share, you should be open about your financial habits, debt, credit score and income with your co-buyer. If sharing financial information feels uncomfortable, don’t forget that your friends should also share it with you. Trust and clarity are essential to working with joint ownership.
Q: What if one of us wants to move?
Your options will depend heavily on what you have decided in your joint ownership agreement. This may mean negotiating that convinces all parties to sell, buying shares, selling individual shares, or even taking legal action. Planning unexpected moves is important to avoid complicated decisions and future disagreements.
Q: What is the best way to avoid harming your friendship?
The best thing you can do is communicate with each other. Be open, honest and respectful about everything from financial matters to dirty dishes. Letting go of the little things can help in any communal living situation, but it’s important to protect your boundaries and not make things into a bigger argument.
Q: Is it better to buy a house with friends or rent?
Buying a home involves a lot of planning and personal responsibilities. If you’ve been planning on sticking for a while and want to start building equity, owning a home might be the right option for you. If you or your friends want more lifestyle flexibility in the near future, it’s probably better to rent it. Ultimately, it’s up to you to decide which path is right for your particular situation.
