Buying a house with a friend: Pros, cons and how to get started

Buying a home with a friend can help both of you afford to buy a house. Plus, what could be more fun than living with a friend? To set yourself up for success, it's important you both understand what you're committing to and how you'll handle any problems that may come up. If your friend is laid off and can no longer afford to pay their share of the mortgage, you'd have to step up or risk default and foreclosure. Would you have to sell the home if one of you decides to get married or take a job in a different town? Understanding the pros and cons and establishing a solid financial and legal foundation for buying a home together will help you decide if it's the right move for you.

Can you buy a house with a friend?

Yes, you can buy a home with a friend. Lenders typically allow two or more people to take out a mortgage and buy a house together, as long as each party qualifies for the loan. There are even a few different ways you can share ownership.

Pros and cons of buying a house with a friend

Buying a home with a friend can be a more affordable and less overwhelming experience. Splitting costs and responsibilities eases the load, but it comes with risks. If things don't go as planned, it could damage your finances and strain your relationship.

Here are some of the pros and cons to weigh before buying a home with a friend.

Pros

• You might qualify for a larger loan. As with married couples, lenders review the income of both applicants. Depending on your individual financial situation, this could enable you to borrow more than you could on your own. But even if you qualify for a larger loan, make sure you can comfortably afford the loan and the cost of owning a home.
• You could boost your mortgage approval odds. When combining income and favorable credit scores, it may increase your chances of loan approval.
• You may be able to secure a lower interest rate. Applying with another person may help you qualify for a lower mortgage interest rate than you would on your own, especially if your pal has a more favorable credit history. Qualifying for a lower rate could reduce your monthly payment and save you thousands over the life of the loan.
• You can make a higher down payment. A larger down payment reduces the amount you need to borrow. It also might help you avoid paying for private mortgage insurance, which is required if you put down less than 20% on a conventional loan.
• You can split the costs and responsibilities. Sharing expenses, such as mortgage payments, utilities, and maintenance, can make homeownership more budget-friendly and less stressful. It also can make chores, upkeep, and repairs less overwhelming since you can share the workload.
• You can build equity together. Over time, your monthly mortgage payments help you build equity, which is a form of ownership. Buying with a friend may help you do that faster than you would on your own.
• It can help you get your first home or start investing. Partnering with a friend can make it easier to break into the housing market or begin building a real estate portfolio earlier in your career.
• You can benefit from your friend's company. From decorating to daily life, owning a home with a friend can make the experience more enjoyable and less isolating.

Cons

• Your friend's credit could affect your loan terms. Even if you have a good credit score, factors such as your interest rate, monthly payment, or overall loan offer may not be as favorable if your friend's credit history isn't in great shape.
• Your friend's financial habits can affect your credit. If your friend misses payments, it could hurt your credit score, even if you've always paid your portion on time.
• Your debt-to-income ratio could increase. Even if you're splitting the mortgage, both of you are legally responsible for the full amount. So, when you apply for other loans, your DTI ratio may appear higher than expected.
• It can be challenging if one of you wants to move out. Since both names are on the mortgage, you'd need to refinance the loan to remove one person. Unless you're in a strong financial position, it may be hard to afford the home on your own.
• The fine print might be hard to navigate. You'll need to decide how ownership is split and what happens if one of you passes away or wants to sell. These conversations aren't always easy, but it's better to have a plan in place before the unexpected happens.
• Your relationship might suffer. Your friendship could be put to the test. Sharing the responsibilities of homeownership can add stress and lead to tension. Before buying a home together, it's worth asking if your relationship can handle the pressure and if it's worth the risk.

How to buy a house with a friend: 5 helpful tips

If you're ready to buy a home with a friend, here are 5 tips for a successful venture.

1. Choose your partner wisely

Buying a home is a huge undertaking, even when you're doing it alone. So, when you add another person into the mix, with a different lifestyle, budget, and long-term goals, things can get complicated. That's why it's key to make sure you're both financially stable and on the same page about what homeownership involves.

Before you move forward, ask yourselves questions like:

• Are my finances in a good spot?
• Do I have a reliable and steady income?
• How much home can I afford?
• What's my credit score, and how might it affect our loan options?
• Do we both want the same things in a home and neighborhood?
• How long do I plan on living in this house?
• Are either of us in or likely to enter a long-term relationship that could change our plans?

Remember that it's important to be clear about where you both stand. This way, you can help prevent misunderstandings and set the stage for a smoother, more successful experience.

2. Figure out how to split ownership

When you buy an asset, such as a home, with a spouse, the property is considered marital property, which means it can be owned jointly by both parties or by one spouse. However, when you buy a home with a friend, you'll need to determine how your ownership is structured. The two standard options are joint tenancy and tenancy in common.

• Joint tenancy gives each owner an equal share of ownership in the home. It also comes with the right of survivorship, which means that if one person passes away, their portion of the property automatically passes to the other. While it may seem straightforward, both owners are equally responsible for everything, including the mortgage and all bills.
• Tenancy in common offers more flexibility. You don't have to split ownership 50/50. Instead, you can divide it however you want. And if something happens to one of you, your share of the home can go to the beneficiary of your choice. It doesn't have to go to the other owner automatically. This option may require going through probate.

It's a good idea to consult with a real estate attorney to determine what approach makes the most sense for your situation.

3. Decide on property type

A traditional single-family home may be a good fit if you're comfortable living in close quarters with your friend. On the other hand, if you'd prefer more privacy, you could consider other types of property, like a duplex or another type of multifamily home.

Another option is to buy a larger property with three or four units. That way, you can each have your own space and rent out the extra units to bring in income.

4. Divide responsibilities

You and your friend will need to divide the other costs that come with owning a home, such as repairs, maintenance, and utility bills. One way to stay ahead of these expenses is to set up a joint savings account to cover any unexpected expenses.

You'll also want to agree on how to handle responsibilities around the house. Perhaps your friend is more skilled and can take the lead on repairs, while you handle yard work or schedule maintenance. As long as the workload feels fair and you both know what to expect, it can help keep things running smoothly.

5. Make a plan for moving or selling

Life happens, and plans can change. Maybe you lose your job, fall in love, or get an opportunity across the country. That's why it's important to have a backup plan.

It might feel uncomfortable, but outlining exactly what happens if one of you needs out can help you avoid confusion and conflict later. Will you sell the home, or will one of you refinance to take it over? If you sell, how will you split the costs, profits, and responsibilities?

Having these decisions mapped out from the start can make things a whole lot smoother if life takes a turn.

FAQ 

Here are answers to common questions about buying a home with a friend.

What is it called when you share a house with someone?

When you share a house with someone and both of you own it, it's usually called co-ownership or co-tenancy. There are several ways to set it up, such as joint tenancy or tenancy in common. With joint tenancy, everything is split 50/50 and passes to the other person if one of you passes away. In contrast, tenancy in common gives each person a separate share, offering more flexibility if plans change.

What are the benefits of adding someone to your mortgage?

Depending on the situation, adding someone to your mortgage can help you qualify for a better interest rate, get more favorable loan terms, or reduce the monthly payment. It also can make it easier to split the down payment and ongoing costs like the mortgage, insurance, and maintenance.

The bottom line: Buying a home with a friend requires careful consideration

Partnering with a friend to buy a home can make the dream of homeownership more accessible. Do your due diligence and understand everything involved. From sharing financial responsibilities to splitting tasks that keep the house in top shape, it's essential that you're both on the same page. By setting clear expectations and hiring an attorney to outline all of the details, buying with a friend could work out in your favor.

And when you're ready to get started, you can begin your Rocket Mortgage^® application online.