Things to Consider When Buying a House With a Friend
It’s every person’s dream to one day become a homeowner. However, because of the current housing market, it has become impossible for many to invest in their own real estate property. Many young people, especially, find it difficult to save up and come up with the deposit needed to secure a loan and a house.
So, some people are compromising by dipping their toes into the real estate market with a friend. It’s not common for two unrelated people to bring together their savings and buy a house of their own, but it’s not impossible.
There are several things you should consider before doing such a thing, however.
Big Enough for the Two — or More — of You
First and foremost, make sure that the house is big enough to accommodate both of you. There should be ample rooms for both of you to reside in, and there should be enough for each person’s belongings. If the house is too big for your savings, then you’ll have to consider buying a smaller place.
The Dreaded Shared Home Loan
It’s likely that you’ll have to take out a shared mortgage. In doing so, you’re essentially borrowing money from the bank or a lender as a group and paying it back as a joint effort. This is an important step that shouldn’t be overlooked or taken lightly.
The same processes will be followed when you’re taking out a loan that will finance the purchase of your home. Your financial history will still need to be vetted by the lender to see if you’re stable enough for the home loan.
The financial stability of your friend will have to be met, too. They’ll want to know that their investment in the house will be repaid, so they should have enough money saved up or earn enough income to support themselves while paying off the mortgage.
Division of Costs
The cost of the house will not be the only expense you’ll have to make when you purchase a property. Likely, after you move in, you’ll encounter a few more costs right away. There will be the cost of utilities, such as power and gas, and repairs such as sealing cracks in the wall and replacing a broken faucet.
There’s also the expense that comes from decorating your new living space. Plus, you’ll also have to shell out a fair bit of money for your house insurance — if you don’t already have it.
You should go over these costs with your friend before taking out the loan so that you know exactly how much money you can spend, and how much money you’ll need to save up.
What if One Person Changes Their Mind?
If you’re taking out a loan together, make sure everyone’s on the same page here. What happens if one person backs out of the deal? Or what if one person can’t keep up with their payments?
You should have a contingency plan for the worst-case scenario. If one person has to leave, then you should consider how that can be handled. If one person is struggling financially, then they might need to sell their share of the house to you or your friend in order to pay off the loan.
If you have the misfortune of one person being forced to leave, then your friend(s) will be on their own. Even though they’re tied to a loan with someone else, it’s still only them that is obligated to the bank for their portion of the costs.
It’s important to consider all your options before you move in together with a friend.
What Happens to the House in the End?
One day, you may save up enough to buy your own houses. What will happen to this property you bought together, then? Will one person get the house, and the other person get empty-handed? Or will there be a division of costs in the end, and who gets how much?
This is something you should discuss with your friend before you take out a home loan together.
Most importantly, get everything in writing. This is your safety net in the event that something goes wrong. If you don’t have it in writing, then it’s going to be a he said/she said situation and this could lead to disagreements and some awkward conversations.
Buying a house with friends can be a great way to get into the housing market, but it’s important to consider all the potential ramifications of such an agreement. By discussing these things and coming up with a plan that covers every possible eventuality, you can avoid major problems down the road.