Friends are great companions, especially your best friends, boyfriend, or girlfriend. They stand by your side through thick and thin, and you do everything with them while creating everlasting memories. Sometimes, a friendship may grow stronger when you accomplish things side-by-side or conquer life milestones together.
Well, consider accomplishing homeownership together for a second. Yes, we are talking about buying a home, one of the biggest purchases you will make in your lifetime. Being a monumental financial achievement, buying a house with a friend may not be as easy of a decision to make together for several reasons, which we are happy to explain in this blog. You may initially think it a good or bad idea, but regardless, it is important to first start with honest communication to ensure buying a house benefits everyone’s financial goals. Buying a house with a friend should be an advantage for everyone involved and not be one-sided. Otherwise, concerns will follow.
Because there are legal aspects involved in the home-buying process that make you and your friend more than just roommates who own a home together, it may be time to move your friendship to the next level, financially. So should you buy a house with a friend? Let’s discuss the pros and cons to find out if it will work.
First, Can You Buy a House with a Friend?
Absolutely! Buying a house does not have to be a solo journey. For example, it is very common to get a mortgage with a parent. If your income is not sufficient enough to get pre-approved for a home within your budget, involving another person in the mix will help get past that step. The same goes with buying a house with a friend, only now you both are more than friends. You are co-borrowers!
To be co-borrowers means you and your friend are applying for a mortgage together for a property you both own. Any two people can apply for a mortgage, but whether you are pre-approved for a mortgage together is a different question. How do lenders consider both of you when looking at your application? Lenders may consider many things with each of you, such as your financial histories, incomes, and DTI ratios. Similar to how you would provide documentation if you were to apply for a mortgage on your own, the same applies if you are applying with a friend. Only now, each of you will provide your income and asset documentation to be verified by your chosen mortgage lender.
Applying for a mortgage is not necessarily the difficult step of buying a house with a friend, as it is more the decisions that both of you need to make together. So what are the pros and cons of this collaborative financial experience?
Pros of Buying a House with a Friend
Buying a house with a friend may not always be difficult, for there are several advantages to the deed, such as…
Lower living costs. Most people who rent reduce their living costs by living with others. Especially today, when rent prices are high, it is usually easier and cheaper to find a friend or two to share a space with and split the monthly rent. When buying a house with a friend, the same concept applies.
Depending on the situation agreed upon between you and your friend, your part to pay may just be half of the monthly mortgage payment or at a different percentage based on your comparable income. Whatever it may be, being fully responsible for paying the entire mortgage can eventually put a dent in your finances, making you unable to save or spend on anything else. If you trust someone enough to split the cost with you, then it is one of the best advantages that come with buying a house with a friend.
Companionship. During adulthood, you learn to embrace your independence and unique way of life. You charge into the unknown with the pride of finally being on your own. This doesn’t mean companionship and friendship aren’t needed anymore. In fact, the companionship may be necessary for you as you navigate adulthood. Now, companionship might not benefit everyone looking to buy a home because several people would rather live on their own. There is nothing wrong with that, as having your own space is rare these days and should be cherished! However, if you don’t mind companionship and even sometimes enjoy it, then buying a house with a friend can satisfy that social aspect of your life.
Instead of thinking of your friend as a joint tenant in formal, financial terms, simply think of them as a roommate! Assuming you are friends with this person because you have similar hobbies and interests, then sharing a living space can make the experience fun. You can still enjoy your private bubble, granted you have your room, but it’s nice to know that you can rely on your roommate to do anything together while living in such close quarters.
Shared responsibility. Having a place of your own is a thing of liberty, but many people forget the burden of responsibility that it comes with. Of course, you become responsible for financial duties such as keeping up with your mortgage payments and paying bills. Well, now that you are your own landlord, it’s time to indulge in other homeowner duties, such as cleaning and maintaining the house, buying groceries, decorating, and repairing any damage.
If you were to buy the home alone, this responsibility would fall on you individually, which can be detrimental to your mental health and busy schedule. However, if you buy a house with a friend, again, think of it as having a roommate. You now both share those responsibilities and hopefully, have enough time to spend on other activities. It can also be a plus to know that if you ever run into any mortgage or maintenance issues that you are unsure about or cannot attend to right away, you can rely on your friend to help you and vice versa.
Investment opportunity. Buying a house with a friend does not always translate to living together but can be seen as an investment opportunity. There are several people every year who buy a house as an investment with another person, sometimes this being a friend, boyfriend, or girlfriend. Some may consider investments too complex of a financial goal because there is expected to be more responsibility and pressure in making sure that you are generating profit for it to be a sensible investment.
To reduce risk, you can buy a house with a friend and rent it out to others as co-landlords. In this situation, you would be again, splitting costs and responsibilities between each other, and reaping the rewards together based on your agreed-upon equity share. If living with your friend is not something you want to partake in but are still interested in buying a house with them, consider making it an investment opportunity that benefits you both.
Cons of Buying a House with a Friend
Now that we’ve seen the greener side of buying a house with a friend, let’s consider some cons, such as…
Uncertainty of the future. How long have you known the person you are considering buying a house with? Are you childhood friends or do you two have a newfound friendship? No matter how long you have known someone, there is no telling what will happen next. For example, you or your friend may have to relocate across the country for a new job, leaving both of you to deal with the house before the mortgage is paid off. Or, it may make the friendship harder as you both try to adapt to each other as roommates instead of just friends now that you share a living space along with its responsibilities.
Even though you may apply for a 30-year mortgage on a fixed rate together, it can be difficult to tell what will happen within the life of the loan that ends up in another financial decision. You may have to sell the house and split the profits or buy one of the other’s ownership out, which can lead to legal disarray if there is no pre-set contract in place to address and solve these situations quickly.
No legality in place. Do you know of any two people that own a home together? Maybe your parents come to mind or close friends who are married. These two examples indicate how common it is for home buyers to purchase a home together with a mortgage, especially when married. You may have heard a lot of controversy around buying a house with someone you are not married to because being married involves legal aspects that protect you both if things go south. Without these legalities in place, it can be very difficult and costly to compromise on a solution to a problem together because no contract or matrimony exists to outline a clear and concise process.
This is why it’s important to know that if you decide on buying a home with a friend or your significant other to who you are not married, to find a power of attorney to draft up a contract that explicitly details the financial relationship you both have, and what will happen should a scenario arise where the mortgage falls through and one of you, or both of you, are unable to sustain the financial relationship or continue living together.
Difference of opinion. This can sound weird because how can you have a difference of opinion with your friend? Well, you may already have differences of opinion on other things, but if you have never lived with your friend before or made any financial decisions together, then you may experience this for the first time.
There’s no problem with having a difference of opinion with your co-borrower in your home buying journey, but the problem is when those differences aren’t communicated properly. These issues can arise in several situations, such as personal preferences when choosing your home, how to split responsibilities, ideas on how to decorate, or how to split the profits if you decide to sell at a later time. Should tension ever occur, remember to be honest and open with your friend. The more you learn to address and tackle these issues with a solution or compromise, the more you will get used to each other’s differences and maybe learn how to work with them. Otherwise, it will be difficult to stay in this financial relationship, and one of you will look for a quick way out.
Not having full independence. Buying a house is a rewarding financial achievement because it ignites a path to building wealth for your future. Some may choose the path of homeownership because it grants an undeniable feeling of financial independence. While buying a home with a friend contributes to your ability to build wealth due to sharing the financial responsibility, your equity may not grow at an optimal rate than if you were to have full ownership of the property.
You also may not able to fully control or make decisions that you prefer because you now have to consider your friend’s opinions too. For example, think of damage and maintenance costs. If something needs to be fixed, you may want to hire the best-rated professional to ensure a well-done service, but your friend may be on a tight budget and thinks it’s not worth it to hire anyone and that it can be done DIY-style. While having a companion to share these things with can be seen as blessing, there may be times you think otherwise. Maybe now you are excited to share a living space with a friend, but later down the road, you may be ready to own a home all on your own or are planning to move in with your significant other. If this is the case, you may face a tense aftermath that resolves into a falling out. Again, communicate with your friend as much as possible and keep each other involved in any decisions that involve the house.
Ready to Buy a House with a Friend?
While we may have provided a lot of sound advice on if you should buy a house with a friend, be weary that we are not aware of your entire situation. Even if your situation is completely different, it’s always good to sit down with your friend beforehand and discuss all possible scenarios of buying a house together, even the bad ones. Finding a legal expert to go over the legal implications of this financial decision will give some insight into issues you may not have thought of. You can also confide in a trusted third party such as a family member or neutral friend to get another perspective on what it would be like to live with your friend. They may influence your decision based on previous interactions with your friend that you have not seen or noticed. Ultimately, the decision is between you and your friend, but it’s good to consider everything, even if you need outside help to do so.
If you are unsure of what the costs will look like, find a local loan officer in your area to help you break down the costs. They can also give you their experience of working with co-borrowers who were friends and may be able to apply certain lessons to your situation. If you and your friend are ready to apply for a mortgage, we are here to help you get started. Check out our guide on applying for a mortgage and reach out to us should you have any questions.
