Can you buy a house with a friend?
You can purchase a home with virtually anyone, including a friend — or several friends. But blending friendship and homeownership has benefits and drawbacks, and it entails taking a unique set of steps to qualify for a mortgage.
Pros & cons of buying a house with friends
According to a recent Realtor.com survey of more than 1,000 U.S. adults, nearly one in three American homeowners have bought a primary home with someone other than their spouse. But purchasing property with a friend has its share of pros and cons.
Pros of buying a house with friends
- It can be easier to qualify for a mortgage loan. If both of you are applying for the mortgage, lenders will consider your combined assets, credit scores, and incomes when determining your eligibility for a home loan. And two incomes are always better than one in terms of how much home you can afford.
- It can help with a down payment. Splitting a down payment can help you save a lot of money upfront. And, with the median down payment on a home clocking in at about 13%, a typical down payment on a $300,000 house would cost $39,000. That’s no small amount, especially when you consider that wages haven’t been keeping up with home price growth.
- It can make ongoing monthly expenses more manageable. In addition to sharing responsibility for the monthly mortgage payment, you and a friend can split other homeownership costs, such as utilities, maintenance, repairs, and any mortgage insurance. This will help to make homeownership more affordable for both parties.
Cons of buying a house with friends
- It can potentially hurt your mortgage rate. If your friend has a lower credit score than you do, their lackluster credit could impact the interest rate you qualify for when applying for a mortgage. Mortgage lenders will consider both borrowers when reviewing your application. Generally, borrowers with credit scores of 740 or higher qualify for the best mortgage interest rates.
- It prevents you from having sole control of the home. When you co-own a home with a friend, your friend has a say over what happens to the property. This can create tension if only one of you decides you want to sell the home in the future.
- It can strain your friendship. Co-owning a home with a friend can be a recipe for tension if you don’t see eye to eye. It can also hurt your friendship if you live in the home together and don’t gel as roommates because of lifestyle differences.
How to buy a house with a friend: Step-by-step guide
Now that you know the pros and cons of purchasing property with a friend, you can make an informed decision about whether to buy a home with a friend.
If you decide you want to move forward, the following steps can streamline the buying process.
1. Create an ironclad contract.
Things can get messy without a written contract that spells out the terms of your agreement as co-owners. Your ownership agreement should specify terms such as who’s responsible for what expenses (including utilities, repairs, and home improvements), how home appreciation will be shared, how tax breaks will be divided, what happens if either person wants to sell, and how capital gains will be split when the property is sold. Pro tip: Although you can find generic co-ownership agreements online, it’s wise to have a real estate attorney draw up your contract, or at least review your contract before you sign it so that the terms are fair to both parties.
2. Determine your homeownership structure.
When co-buyers aren’t married, they typically share title (ownership) of the property as either tenants in common (TIC) or as joint tenants. TIC is a more flexible type of ownership since it allows for owners to have an unequal share of the property, which can be a good option if one person funds a larger portion of the down payment. Joint tenants, meanwhile, own a 50-50 share of the home.
3. Create a budget.
Discuss what price range you feel comfortable with so that you’re on the same page when you go to tour homes. Determine the maximum amount that you agree to spend on a home.
4. Discuss your exit strategy.
Establish clear provisions for how the home will be handled if one of you dies, wishes to sell your stake in the property, or experiences financial hardship and can’t pay their share of the mortgage. These conditions will provide protection for both parties.
5. Create a joint bank account.
Opening a joint checking account for homeownership expenses — including the monthly mortgage payment, utilities, property maintenance, homeowner’s association dues, and other ongoing costs — can help ensure that all bills get paid on time.
When is buying a house with a friend a good idea?
There are a number of scenarios where it may make sense to purchase a house with a friend:
- You need help qualifying for a mortgage. If you have a subpar credit score (think below 620) or insufficient income to qualify for a home loan, buying a house with a friend who has strong credit and a good income can strengthen your loan application. It can also be a great opportunity for first-time home buyers who may have a harder time coming up with down payment funds.
- You can’t afford homeownership expenses on your own. If you don’t feel comfortable taking on the responsibility of a mortgage, property taxes, insurance, and other recurring expenses, buying a property with a friend can help you manage the costs.
- You want the same things in a house. Whether you’re buying a primary home, where you’ll live together as roommates, or an investment property, make sure you’re aligned in terms of the type of house you want to purchase. Drill down to square footage, number of bedrooms and bathrooms, style, and, of course, location.
- You feel comfortable disclosing your financial situation. Considering that you’re making such a large investment together, there should be no secrets when it comes to sharing your personal finances, including income, savings, debts, credit scores, and spending habits.
- Your friendship is rock solid. Disagreements can arise when you own a home with a friend, from mundane squabbles — such as different temperature preferences — to significant feuds, like clashing design tastes. Is your friendship strong enough to withstand the inevitable quarrels that come with co-owning a home?
Buying a house with a friend FAQ
Is it a good idea to buy a house with friends?
Whether it’s a wise idea for you to purchase a home with a friend depends on several factors, most notably the shape of your finances, your goals for purchasing the home, and your compatibility as roommates if you’re both going to live in the home as a primary residence. Depending on the housing market where you live, it can help bring a home purchase within reach. So, sit down with your friend and have an honest conversation about your motivations for buying a home together before you decide to move forward.
Can friends buy a house together?
Yes, there’s nothing stopping you, legally, from co-buying a home with a friend. Joint home ownership isn’t limited to family members or married couples (or unmarried couples!). But it’s important to create a written contract that specifies the terms of your responsibilities and rights as co-owners.
How long should you be with someone before buying a house together?
There’s no hard-and-fast rule in terms of how long you should live with a friend before buying a house together, but it’s generally a good idea to cohabitate for at least a year before going in on a home together. That way, you’ll have a strong sense of how compatible you are as roommates before you commit to a long-term relationship.
The bottom line: Buying a house with a friend
Buying a house with a friend can bring home ownership into reach for some home buyers. For buyers who are thoughtful about the implications of sharing a mortgage, it can provide a great opportunity to begin building home equity.