Buying a home with a friend

Quick insights

• Buying a house with a friend involves setting expectations about responsibilities, financial contributions and long-term goals to avoid misunderstandings.
• A real estate attorney can draft a legal co-ownership agreement that outlines ownership shares, payment obligations and plans for resolving disputes or selling the property.
• Communication, financial planning and choosing the right ownership structure can help ensure a successful partnership.

Purchasing a house with a friend can make achieving homeownership goals easier and more manageable. From splitting costs to managing responsibilities, co-ownership demands clear communication, thoughtful preparation and legal safeguards. This article describes how the partnership can be smooth and successful.

Can you buy a house with a friend?

Yes, you can buy a house with a friend. It can be exciting to dive into homeownership together. Pooling your resources might mean you can afford a larger space, or a home located in a desirable neighborhood compared to buying a home on your own. However, it’s important to approach this decision and process carefully.

Things to consider before buying a house with friends

Before buying a house with a friend, there are several important factors that can help get you both on the same page.

• Relationship with your friend: Your friendship should be strong enough to handle the stresses of homeownership. It’s important to have open communication and agree on expectations before making such a significant commitment.
• Location: Choose a location that works for both of you. Consider proximity to work, lifestyle preferences and long-term goals to ensure the area fits both of your needs.
• Price: Be clear about what each person can afford and how much you’re both willing to contribute. Make sure you’re both comfortable with the price range and mortgage terms.
• Property type: Discuss what kind of property suits both of your lifestyles. Whether it’s a single-family home, townhouse or condo, ensure it meets your needs now and in the future.
• Financial compatibility: Assess each person’s financial health, including credit scores and debt levels. This will help determine eligibility for favorable mortgage terms and prevent surprises during the approval process.
• Ownership terms: It’s important to decide how the property will be owned. Will it be joint tenancy (both have equal ownership rights and responsibilities) or tenancy in common (each person owns a specific percentage of the property)?
• Legal agreement: Consulting with a legal professional to draw up a formal agreement is critical. It helps ensure that both parties have a clear understanding of their rights, responsibilities and what happens in case of disagreements or changes.
• Financial and household responsibilities: Agree on who will handle mortgage payments, maintenance costs, utility bills and all things household management.
• Have a plan for splitting up: Make sure you have a strategy in place for what happens if one of you wants to sell or move out. Having an exit plan or buyout agreement in advance will make any future transitions easier.

Pros and cons of buying a house with a friend

Buying a house with a friend can be a great opportunity, but like any shared responsibility, it comes with both benefits and potential challenges. Here are several pros and cons to consider before making the leap:

Pros

• Shared financial responsibility: Both parties can contribute to the down payment and mortgage payments, making homeownership more affordable.
• Larger property or better location: Pooling funds can enable you to buy a bigger home or secure a home in a more desirable location than you could on your own.
• Companionship and support: Living together can offer emotional support and strengthen your bond, especially if you’re in a new area or going through major life changes.
• Increased investment potential: As co-owners, you both benefit from potential property value increases, helping you build wealth together.

Cons

• Conflict over decisions: Disagreements can arise over household management, property upgrades or even lifestyle differences that could strain the friendship.
• Financial risks: If one person struggles to meet financial responsibilities, it could impact both parties, especially in terms of mortgage payments and credit.
• Difficulty selling or separating: If one person wants to sell or move out, it can create a complicated and lengthy process if there’s no clear plan in place.
• Legal complexities: Joint ownership comes with legal responsibilities that require careful consideration, especially regarding asset division if the relationship deteriorates.

How to buy a house with a friend: Tips

Purchasing a house with a friend can be a thrilling opportunity to share costs and responsibilities, but it requires careful planning and clear communication. Follow these step-by-step tips for a smooth and successful co-ownership experience.

Discuss your goals and expectations

Before diving into the homebuying process, have an honest conversation with your friend about shared goals and expectations. Consider the following questions:

• What type of property are you looking for?
• How long do you plan to live there?
• What are your long-term financial goals?
• How will responsibilities be divided (e.g., maintenance, bills and household chores)?

Assess financial readiness

Both parties should assess their financial health and ensure they are in a stable position to afford homeownership. Here are some key financial figures to gather:

• Credit scores
• Debt-to-income (DTI) ratios
• Income
• Expenses
• Down payment
• Closing costs

You may also need to plan for ongoing expenses. Homeownership involves more than just mortgage payments. Discuss and plan for additional costs, such as property taxes, insurance, maintenance, utilities and unexpected repairs.

Choose the right ownership structure

Decide on the most suitable ownership arrangement to protect both parties’ interests. Common options include joint tenancy and tenancy in common. Consult with a real estate attorney or legal professional to determine which option fits your situation.

Get preapproved for a mortgage

A mortgage preapproval helps you understand how much you can afford and demonstrates financial credibility to sellers. Lenders may offer co-borrower options, but regardless of the arrangement, financial documents for both parties may be required. Depending on your situation, you might also want to decide whose credit score and income will be used to qualify for the loan.

Create a legal agreement

Drafting a formal co-ownership agreement with a professional can avoid potential disputes and issues down the road. This type of document may outline several key points, including:

• Ownership percentage for each party
• Payment responsibilities for mortgage, utilities and repairs
• Exit strategies if one person wants to sell their share
• Conflict resolution methods

Find the right property

Once the finances and legal aspects are settled, start searching for a home that meets both of your needs. Take into account factors such as:

• Location and proximity to work or amenities
• Size and layout that accommodates both owners comfortably
• Potential for future resale value

Set clear boundaries and communication strategies

To help maintain a healthy co-ownership relationship, establish boundaries and open communication channels. Using apps or spreadsheets to track expenses could help keep most matters transparent and productive. You may want to check in regularly on your budgets, household responsibilities, shared spaces and future plans regarding the property, as they can change.

In summary

Buying a home with a friend can be a great way to share costs and responsibilities, but it requires careful planning. It’s important to weigh the pros and cons, considering how shared ownership may impact your long-term relationship and financial goals. You’ll need to decide on how the property will be titled, how costs will be shared and what happens if one of you wants to move out. A formal agreement is key to avoiding possible conflicts.

If you and your friend are on the same page, it can be a rewarding experience. However, seeking guidance can help you navigate the complexities of buying a home with a friend with confidence.