Everything To Know About Buying A House With A Friend

Most people buy homes either by themselves or with romantic partners. However, it’s also possible to buy a home with someone else, including a friend. In fact, buying a home with a friend has become an increasingly attractive move in recent years, as the price of homeownership has risen beyond what many people can afford on their own.

There are a couple of different ways to go about buying a joint home with a friend. However, any time you entangle your finances with someone else’s, there are risks and considerations to keep top of mind. Keep reading to learn how buying a house with a friend works, the pros and cons and some tips to help you along the way.

Can You Buy A House With A Friend?

The short answer is that yes, you can buy a house with a friend. A mortgage is one of the many types of loans that you can apply for either individually or jointly. In fact, you may even find that it’s easier to qualify for a mortgage when applying with a friend.

If you apply for a joint mortgage, your lender will look at both borrowers’ credit scores, income histories, debt-to-income ratios (DTIs), etc. Both your incomes combined will be considered when determining how much you qualify to borrow. However, the lender generally uses the lowest credit score to determine eligibility and interest rate.

Methods For How To Buy A House With A Friend

If you’re planning to buy a house with a friend, there are a couple of different ownership strategies you can use. The method you choose will impact your level of ownership over the home, as well as what happens to the house if you pass away.

Joint Tenancy

When you own a home with joint tenancy, all owners hold an equal amount of ownership through the house deed. If you and a friend purchased a home together, you would jointly own the entire home rather than each of you owning a percentage of it.

Because each owner is an equal owner, no one owner can make any decisions regarding the property, such as whether to sell the home, without the consent of the other.

Another common feature of joint tenancy is the right of survivorship. This means that if one of the co-owners passes away, the other co-owner then has sole ownership of the property. If you own a home as a joint tenancy with a right of survivorship, you can’t leave your share of the home to a loved one in your will.

Tenancy In Common

Tenancy in common describes an ownership structure where each co-owner owns a specific percentage of the house title. For example, if you and a friend purchase a home together, you might each own 50% of the home. You could also agree that one friend owns 75%, while the other owns 25% if that makes more sense for your situation.

With a tenancy in common, you can’t sell the property without the consent of the other owner(s). However, you can sell your share of the property either to your co-owner or to someone else. Additionally, because you solely own your percentage of the home, if you pass away, you can leave that percentage to a loved one or beneficiary.

Pros And Cons Of Buying A House With Friends

Buying a house with a friend has some key advantages, but it also comes with some important downsides and risks. It’s important to weigh both the pros and cons before committing to buying a house with someone else.

Tips That Make Buying Property With Friends Easier

Buying a home with a friend is a big decision and can be a complicated process. There are a few steps you can take to make things easier for everyone involved.

Discuss Finances Before Buying

Buying a house is a major financial commitment. It’s a legal contract and should be treated with that level of seriousness.

If you decide to buy a home with friends, it’s important that you’re both open about the financial aspects. First, you should discuss your financial situation to ensure that all parties are financially equipped to take on a mortgage payment. If one party has significant debt or has struggled to pay their bills in the past, that’s something that should be discussed.

You should also talk about how you’ll divide the financial responsibilities of the home. What percentage of the home will you each own? How will you divide the utility payments and other bills associated with owning the home? Who will pay for home improvements? Getting all of this out in the open can help avoid conflict down the road.

Establish And Align Your Goals

It’s important that if you decide to purchase a home with a friend, you both go into it with the same goals. It could be the case that one friend is looking for a long-term home. But what if the other friend sees this as a short-term home and hopes to turn it into a jointly owned investment property down the line? Everyone should be on the same page.

Plan An Exit Strategy

You might be purchasing a home with the intention of cohabitating forever. However, that’s probably not the case for many friends who buy homes together. It’s important that all parties have a prospective conversation about what happens if someone wants or needs out of the house.

For example, what happens if one friend gets married and wants to own a home with their new spouse? Or what if a friend has a major change in their financial situation and either can’t afford the current home or wants to upgrade?

If one friend wants to sell their share of the home, there are a few different options:

• You and your friend sell the home and split the proceeds appropriately.
• One friend sells their share to the other friend, who is then the sole owner of the home.
• One friend sells their share to another individual, meaning there is now a new co-owner. This option could make sense if one friend gets married and wants to share the home with their spouse, but it could also result in one friend sharing the home with a stranger.

Get Preapproved

Mortgage preapproval is an important step in the home buying process, and it may be even more important when you’re buying a home with someone else whose finances you aren’t as familiar with.

The first advantage of getting preapproved is that it allows you to see whether you’ll qualify for a mortgage, how much you qualify to borrow and the interest rate at which you qualify to borrow.

Another benefit of getting preapproved is that it gives you a leg up when you’re submitting home offers. A seller may be more inclined to accept the offer of a buyer who has already gone through the preapproval process since it shows they are serious and have the financial means to go through with the purchase.

Use A Real Estate Attorney

Some states require that a real estate attorney be involved in all home sales, while others don’t. However, it may be worth hiring an attorney when buying a house with a friend, no matter where you live.

Buying a house with someone else has major financial and legal implications. And unlike when you acquire assets with a spouse, there isn’t a clear legal framework for how those assets are divided if the relationship deteriorates.

A real estate attorney can help guide the conversations that are necessary for joint homeownership. They can also help you choose the best type of homeownership and help you draw up a plan for what happens if one or both friends want out of the house.

The Bottom Line

Buying a house with a friend might sound appealing, especially if you aren’t able to purchase a house on your own. However, it’s also a big decision that requires some risks and major financial implications.

If you’re considering buying a house with a friend, it’s important to consider the pros and cons and make sure you’re on the same page on all aspects of the agreement. And when you’re ready to start shopping for a home together, start the mortgage approval process with Rocket Mortgage^® to get preapproved before finding your dream home.