6 Things to Consider Before Co-Buying a House with Your Friend
Co-buying has gotten more in more popular in recent years, largely thanks to rising home prices and a lack of housing inventory in today’s red-hot seller’s market.
It’s no wonder either. Not only can co-buying sometimes make it easier to qualify for a mortgage and afford a home, but it also gives you someone to split duties with — someone to help care for and maintain the property (and cover the costs that come with all that).
Still, co-buying’s not the best move for everyone, and it also has some inherent risks to think about.
Are you considering co-buying a home with a friend? Here’s what to consider before you do.
1. Their financial situation and habits.
One of the most important things to think about is your friend’s finances. First, do they have steady income and employment? This is critical if you want them to cover their share of the mortgage and household expenses. It will also impact your mortgage application, as well as what interest rate you get on your loan.
Their credit score matters in this regard, too, so be sure to talk candidly about this before moving forward. Always remember: The higher your (and their) score is, the more affordable your mortgage payment will be.
You should also consider their financial habits. How are they at managing their money? Do they pay their bills on time? Are they responsible with their spending? If they’re not, it could leave household costs on your shoulders or even hurt your credit.
2. Your trust in them.
How well do you know the person? Buying a house is a huge financial move, and it can have lifelong impacts on your wealth, credit, and financial capabilities.
You should reserve co-buying for someone you really know intimately and trust. You need to be able to talk openly about money and finances with them, and you should have full faith that they will live up to the responsibilities of homeownership.
3. Their lifestyle.
You’ll likely be living with this friend for a while, so make sure your lifestyles align. Do they work crazy hours? Do they like to throw big parties? Are they working remotely, meaning they’ll be in the house 24/7? Think long and hard about how your way of living will mesh with theirs.
You should also consider how responsible they are. Do they typically handle their to-dos in a timely fashion? Do they take care of their car? This will likely reflect how they’d care for your property should you buy together.
4. Your future (and theirs).
Though you can’t predict the future, it’s important to consider what both you and your friend’s ideal future looks like before buying a home together. Are either of you looking to get married or have children soon? Do you want to adopt a pet? Move overseas or go backpacking for a year? These are all goals that would impact your household and could even require selling the property. You’ll want any and all possibilities (as well as a potential plan of action for them) before buying a property together.
5. The legal ramifications.
You’ll want to be careful about how you structure your purchase if you’re buying a home with someone you’re not married or related to. Will one or both of you be on the deed? If one of you dies, how will the house be handled? If you have a falling out, what will be your next steps?
You’ll likely need to speak to a lawyer to ensure all your bases are covered — and to protect both you and your friend’s financial interests.
6. The logistics.
It’s not very exciting, but you will want to talk through logistics before co-buying together too. How will the down payment and closing costs work? Will one of you write the check, and the other pay them back? What about household bills and mortgage payments? Who’s bank account will that come from, and what will be the process for ensuring they’re paid on time?
They seem like minor details, but people handle finances in very different ways, so it’s important you’re both on the same page well before you sign on the dotted line.
Talk to a mortgage expert before co-buying
If you’re considering co-buying a house with a friend, make sure you talk to a mortgage advisor first. They can walk you through how it may impact your mortgage application and your ability to qualify for a loan. They can also break down the costs and other details you’ll want to consider.
Do you need advice before you co-buy a home? Get in touch with an Embrace Home Loans office in your area today.