With house prices rising, it can difficult to afford a home on your own. You and a friend might be in the same situation and feel that if you pool your resources, you can invest in a home instead of throwing your money away by paying rent. What all parties have to realize is that this is a business partnership and should be treated as such.
What is involved with Buying a House With a Friend
Before you buy, it is important to look at the big picture and answer these questions:
- Are my friends in a stable financial situation? Can they afford to split mortgage payments, utilities and come up with their share of a down payment? Ask them straight out, to avoid any issues in the future.
- Do we share the same values? Are you both neat freaks? Couch potatoes? This can lead to tension as unlike a traditional business you are living with each other. People are used to doing things a certain way, are you ready to compromise?
- Does everyone agree that this is an investment? Eventually, people’s lives change, they meet someone, relocate for a job. Have you talked about what will happen to the property when one person inevitably needs to sell their share?
Now that you have decided that this deal is going to work, you have to look at getting a mortgage. Is everyone involved going to be listed on the mortgage? All parties will have their credit ratings looked at and generally the person with the lowest credit rating will set the bar as to what a mortgage will be approved for.
After all of these questions have been answered and you have decided to go forward it is recommended that you find a lawyer. Once again, treat this investment as a business arrangement. Sit down with legal council and have a written agreement compiled that includes things such as:
- Who will cover the down payment, property taxes, bills, and repairs when they are needed.
- What will happen to the home if one of the owners is killed or incapacitated.
- When can someone sell or leave the partnership? Do they need to give notice? Can the other partners buy out their share?
Sitting down with a lawyer will make sure that everyone fully understands how situations will be handled as they come up.
The last thing you may want to talk to your new business partner about are the house rules. Set out guidelines regarding pets, parties, noise and guests.
Purchasing a home with a friend can be an excellent way to start building your equity. As long as all of the people involved have been upfront with each other, there should be no surprises along the way to jeopardize the partnership. Let us help you when it is time to apply for that mortgage. We are here to answer any other questions that you may have when planning on buying a home with friends.