Buying a Home with a Friend

Buying a home can be a wise financial decision because it allows you to make an investment rather than spending money on rent each month and getting nothing to keep in return. As a homeowner, you have the potential to build equity as you make mortgage payments each month. You also might see your home's value increase if you make improvements or market home values rise.

For some, being able to afford a home may not be an option. If you are not financially able to buy a home on your own, it may be worth considering buying a home with a friend.

Advantages of buying with a friend

• You are more likely to qualify for a mortgage on a home if you have two incomes and two savings accounts that you can tap into for the down payment and closing costs.
• Buying with a friend allows you to look at neighborhoods you may not otherwise be able to afford on your own.
• You can share the cost of utilities, taxes, insurance, and upkeep on the home, helping you both have low ongoing costs.

Disadvantages of buying with a friend

• You will be in a difficult financial situation if your friend does not make payments on time. Either having to come up with the funds to make your payment in full on time, or missing a payment that will affect your credit score.
• You will need to sort out among yourselves how you will pay for needed repairs and improvements, and how you will decide what projects to undertake.
• One of you may decide to move, and you will have to figure out what to do with the home you own together.

Methods for buying

The typical method for buying a home together is to apply for a mortgage together and have both of your names on the property title. You can either be listed as tenants in common, which allows you to own different shares of the property or as joint tenants, which is an equal split. This method has the advantage of giving all buyers specific legal rights to the property.

If one of you has an especially strong financial situation, you could have just that person apply for the mortgage. The lender will then consider only that buyer's credit score, income, and cash on hand for the down payment. You can then work out an arrangement for how you will handle the payments between yourselves.

Selling your joint home

At some point one of you may to move for a new job, change in relationship status, or just to have your own place. Therefore, you need to have a plan in place for what to do if, or when, this happens. You might agree to get the property appraised and allow one of you to buy out the other's ownership interest. Alternatively, you might sell the property together and split the proceeds. Legally, co-owners can typically sell their interest in the property to someone else, so you should discuss whether you want to keep this available as an exit strategy and whether to place constraints on any new co-owner.

Making it work to buy a home together

If you are serious about buying a home together, consider hiring a lawyer to create a contract that includes all the details. You should identify the contribution each party made to the downpayment and how responsibilities for making your monthly mortgage payment break down. Also, document which of you will claim the mortgage interest tax deduction, how you will finance home repairs, and any guidelines for shared home use. If you have a legal contract, it will be easier to settle any disputes that arise later and hopefully make owning a home a positive experience for everyone.