Buying a house with a friend or family member can put you on the fast track to homeownership. Together, you may be able to purchase a bigger home, move into a better location, or even buy an investment property for passive income. The hard part is finding the right friend. Homeownership requires financial stability and long-term responsibility. Let’s dig into the pros and cons and see if buying a house with a friend is your next best move.
Pros: Top Benefits of Buying a Home with a Friend
Buying a house with a friend might help you qualify for a better mortgage.
Mortgage lenders have strict criteria if you want to get the lowest mortgage rate and the best home loan. Buying a house with a friend could help you meet those criteria and make your profile stronger. Together, you’ll have a larger combined income, more cash reserves, and you’ll be able to qualify for a better mortgage. If you both have a strong credit rating, you’ll be able to qualify for a better mortgage and a bigger house.
Buying a home with a friend might help you become a homeowner faster.
Buying a house with a friend can reduce financial stress and increase your buying power. You’ll be able to make a larger down payment and qualify for a mortgage based on two incomes. You’ll also have more cash available for closing costs and house repairs that may need immediate attention.
As co-owners, you’ll be able to share the financial costs of homeownership.
The costs of homeownership can grow pretty quickly. Property taxes, maintenance and repairs, homeowner’s insurance. It can be helpful to know that you’re sharing the financial burden with a friend. When unexpected repairs show up, you won’t have to go it alone. Set aside time to arrange for predictable costs such as property taxes, so you know how they’ll be paid and who will claim the tax deduction.
As co-owners, you could earn passive rental income.
Joint ownership in a home can offer flexibility for potential income. You could rent a bedroom, offer it as a vacation property, or look into other investment opportunities. As you build equity together, you’ll have more flexibility toward building financial freedom.
Cons: Common Drawbacks to Buying a Home With a Friend
If your friend has bad credit or a lot of debt, it could be harder to qualify.
As co-owners, you’ll need to agree on everything when it comes to the house.
Home repairs, maintenance, remodeling the kitchen or putting in a backyard patio — every cost associated with the house will have to be agreed upon. This isn’t a rule. Just be aware that this is a financial asset, so you’ll need to make each financial decision together.
You could risk foreclosure if one of you stops paying the mortgage.
When you buy a house with a friend, you’re both responsible for the mortgage. This means that if one of you stops paying, the other person will need to cover the cost or risk foreclosure to settle the mortgage.
How to Apply for a Mortgage with a Friend
1. Connect with an experienced mortgage broker to discuss your options
When you apply for a home loan with a friend, the mortgage lender will treat you equally as co-applicants. You’ll both need to share full financial information, credit reports, bank statements, employment history and income.
Working with a qualified mortgage broker can help you get a better mortgage. Since mortgage brokers work with multiple lenders, an experienced broker can shop for the best rate and the best loan based on your qualifications. What’s more, a mortgage broker can explain loan options that you might not know about and set you up with a mortgage that can save you money.
2. Select the best mortgage structure for the property title
Your property title declares who owns the property. When you buy a house with a friend, there are two common types of ownership, and they each hold unique benefits and disadvantages. Talk with your mortgage broker about the details and nuances of each ownership structure:
Tenants in Common: With this agreement, you can decide how you want to split the equity, and it doesn’t need to be split 50/50. You can also sell your ownership stake of the home without the permission of the co-owner. On a similar note, you can designate your portion of ownership to a beneficiary if you pass away.
Joint Tenancy: With this agreement, you and your friend will enjoy equal ownership of the home. Each of you will own 50% equity, and you’ll also be able to borrow against your portion of the equity. One difference worth noting, if one of you dies, the surviving co-owner will automatically own the property in full.
3. Start your mortgage application
Be sure to share your financial information with your friend well ahead of time. Applying for a mortgage will require both of you to disclose everything that relates to your finances, employment, income, and debts.
Once you start your mortgage application, your mortgage broker will work on your behalf to secure the best mortgage possible! An experienced mortgage broker will discuss your loan options, get the lowest rate possible, and help you push through any obstacles that come up.
Buying a house with a friend is a big decision and the details can become overwhelming fast. We work with clients at every stage of homeownership, and we can help you along the process. Buying a house with a friend doesn’t need to be confusing. Our goal is to get you the best mortgage and save you money along the way. Give us a call to get started.