Buying a house with a friend? Is it a good idea?

The rising costs of housing and rent are on almost every millennial’s rue list. It’s no surprise that many people are contemplating alternative housing solutions. One such homeownership solution is buying a house with a friend, a significant other, or a family member.

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Is buying a house with a friend legally possible?

Yes. There are several options that allow any number of eligible people to partner when it comes to purchasing a home as long as all prospective homebuyers are able to qualify and afford the mortgage loan.

You can buy a house with a friend or a group of friends – whether it’s an investment property or a primary residence. You and your friend should agree on a way to share ownership of the house while maintaining a good relationship and partnership. 

Steps for buying a house with a friend

Before getting into the standard home-buying process with your friend, you’ll need to understand how to go about it. 

Choose your friend/partner wisely

Making sure you have the correct partner to buy a house with should be your first priority. After all, you’re making a significant commitment and sharing financial responsibilities together. You and your friend must be honest with each other before agreeing to buy a property. And, discuss your long-term plans to make sure you are on the same page. Are you planning to live in the house together for the foreseeable future, or do you anticipate one of you moving out at some point? It’s important to have a plan in place for how to handle these situations.

Ask each other some frank questions before going ahead with the home-buying process.

• Are you both financially secure?
• Do you have a permanent, stable job?
• Can you make wise decisions regarding mortgage and credit?
• Do you have similar financial goals and priorities?
• Do you want the same things in a house?
• How long will both of you live in the house?
• Is either of you likely to be in a long-term relationship with someone else?

Decide together on the property type

If you plan to move in with a friend, living in a traditional single-family home may not be your preferred choice unless you are comfortable with living in close proximity. Instead, you may want to explore other housing options such as multifamily homes, including duplexes. Another option to consider is purchasing a larger home with three or four units if you are interested in both living there and earning rental income simultaneously.

Split ownership in a legal manner

If you’re buying a house with a friend, you might need to look deeper to understand how different types of co-tenancy will work in your particular circumstance. Ownership conditions more often than not presume that the homeowners are a married couple.

You need to get a legal contract in place and split the mortgage. It’s best to hire a real estate attorney to draw up a legal agreement that outlines the terms of your joint ownership. This agreement should address issues such as how you’ll split the costs, how decisions will be made, and what will happen if one of you wants to sell their share of the property.

There are two types of ownership when there’s more than one property owner.

• Joint tenancy ownership: It gives each homeowner equal property shares. However, it has some stringent rules regarding financial responsibilities and the Right of Survivorship. Moreover, this type of ownership avoids probate. 
• Tenancy in common ownership: The property shares can be divided between the homeowners (equally or unequally) and left to the respective heirs. The property is not passed to the remaining co-owner(s).

Divide the financial responsibilities 

Owning a home involves numerous responsibilities. And, having more than one person to share those tasks can either be advantageous or problematic, depending on the effectiveness of communication between you and your friend or friends. To ensure a smooth home partnership, it’s crucial to discuss and allocate responsibilities in advance, as well as establish a plan for dividing the financial burden of utilities, repairs, and other expenses. Creating a home fund could also be beneficial in ensuring that everyone contributes and has access to emergency funds in case of unexpected expenses.

Consider the tax implications

Jointly owning a property can have tax implications, so make sure you understand how this will affect you and your friend. You may want to consult with a tax professional before making any final decisions.

Make a contingency plan for moving or selling the house

It’s important to have a plan of action in place if something unexpected happens. It could be losing your job or moving to a new place for a new opportunity or a family situation. Both of you need to know how to handle such situations. It’s also important to have a contingency plan in case one of you experiences a financial setback or personal emergency.

What happens if one of you decides to leave the house? Or, if one owner dies? Will you sell the house or refinance it? How will you split the selling costs and profits? Breaking off the home partnership will be a lot easier to handle if you plan well in time.

Pros and cons of purchasing a property with a friend

Buying a home with a friend has its own pros and cons. It’s best to weigh the advantages of co-owning a house with a friend vis-à-vis the possible disadvantages.

Pros

• Co-owning a house by pooling your resources boosts your purchasing power. You’ll be able to afford a better house in a good neighborhood.
• It may be easier to meet the credit score requirements – assuming both borrowers have good credit scores. Since the lenders may look at combined income, it’s possible that you both can qualify for better interest rates together.
• Getting a mortgage may be easier as you’ll be able to afford a higher down payment. If you can manage at least 20% of your home cost upfront, you’ll be able to avoid private mortgage insurance (PMI).
• You can split first-time home-buyer expenses such as utility costs, repair costs, and mortgage payments.
• You can build home equity together and enjoy the value added over time on your asset.
• There’s always an option for you to get into real estate investing by utilizing your saved funds.
• You get to spend your years with a trusted friend. 

Cons

• The mortgagee’s credit score will matter. If your friend has a less-than-perfect credit score, it can negatively affect your mortgage terms and monthly payments.
• If your friend defaults on half of the mortgage payments, your credit score will take a hit too. 
• In case one of you decides to move out, you may need to go through a refinance to get the house under your name – provided you’re financially able to take on the burden of sole homeownership.
• Working out the fine print of the legal agreements can be hard, especially dividing the rights and handling survivorship and inheritance issues. 
• Your debt-to-income ratio (DTI) might be higher if you apply for other loans as you’ll be responsible and liable for the mortgage individually.
• In the case of joint loans, both parties are liable. If one fails to uphold their end of the deal, both of them will be at risk.
• It may affect your relationship. Owning a home together can be overwhelming due to the many responsibilities and first homebuyer challenges. All these may cause stress and disagreements, carrying the risk of damaging the friendship.

Last thoughts

Buying a house with a friend can be a great way to achieve homeownership while sharing financial and practical responsibilities. Just be sure to take the time to plan and discuss all the details before making any final decisions. The good thing is that you may get a larger loan amount and lower interest rates than if you apply for financing as a single borrower. 

However, don’t make this decision hastily – it may end up testing your friendship because of potential disagreements as well as homeownership responsibilities. Make sure you understand the financial, logistical, and emotional hurdles you may face.

Written by Ramona Sinha. March 22, 2023

Ramona is a content writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. An avid traveler, she’s a digital nomad at heart and an animal lover from the depths of her soul.