The traditional notion of owning a home is that you share it with family members, such as parents, siblings, or one’s spouse and kids. If not your typical nuclear family, owning a house on your own is also a usual alternative. But have you ever considered buying a home with your friend?
With home prices on a steady rise, sharing the load of financing a home can be a good idea. But first, look at the ups and downs of doing so. It takes a lot of time, effort, and trust, so it is of utmost importance that you are certain of this decision.
Potential Benefits of Co-Owning a Home
First, here are some great reasons to team up with a friend and buy a property that you can co-own and live in or rent out:
1. It can save you money.
The most apparent pro of buying a home with a friend is that you can split costs with them. This alleviates some burdens of financing your home, including utilities, maintenance, and repairs.
Especially if you have no prior home-buying experience and are only early into your career, having a person to share expenses with gets you started on investing with fewer worries. Take your time to visit various lenders to find the best home loans for first-time buyers, as this can help you both maximize savings.
2. You are likely to have more options.
With your combined buying power, you and your friend are likely to afford a wider range of housing options. Whether you are planning to live in the home together or find tenants to rent it to, gathering your resources gives you the ability to find good homes in prime locations.
3. You have someone to partner with.
When you have limited experience in investing in properties, having a friend to discuss ideas and concerns with is reassuring. A second opinion allows you to better weigh your options and come up with a plan that you have confidence in.
Another benefit of investing in a home with a friend is that you both gain home equity as you continue making payments on your mortgage. Co-owning a home is a better alternative than renting one together since renting requires you to make monthly payments that do not lead to ownership of an asset.
Home ownership even gives you an opportunity to make money from your home should the time come when you both want to let go of the property.
Potential Challenges of Co-Owning a Home
Along with these advantages of buying a home with your friend are the potential issues that you both could face down the line.
1. Your credit scores affect each other’s ratings.
It is true that pursuing a property investment with a friend makes it easier to get a mortgage. However, one thing to note is that your credit score has an effect on your friend’s score and vice versa. One of you could have a high credit score, but an activity that negatively impacts one person’s credit score will work against you both once you apply for a mortgage.
Something to watch out for is the possibility of falling behind on monthly payments. Similarly, this will not only affect the credit score of the one who failed to make their payments, but also the other party who is investing in the home with them.
2. You are both tied to the investment.
If you rent a home together, you and your friend can easily walk away should the time come when one or both of you want out of the arrangement. Buying a home, on the other hand, does not provide the same easy way out for either of you.
You have two options if one of you wants out of the deal: sell the property or refinance your mortgage. Selling can take some time, while refinancing could be a struggle to get approved. It is best to discuss exit plans with your friend to avoid issues.
3. You could disagree over the division of labor.
Co-owning a home can also test the strength of your friendship when it comes to distributing tasks. These include who pays for what and what you both need to do to maintain the property.
Avoid these issues entirely by clearly stating your roles and responsibilities through a written agreement. You can simply refer to the document should anyone get confused at any point.
Buying a home with your friend presents great advantages, but also its own disadvantages. To minimize the problems you will face, enter into this commitment with mutual trust and thorough preparation.