Should I Buy A Home With A Friend

By
Real Estate Agent with Karen Parsons-Fiddler, Broker 949-510-2395 BRE# 01494165

 

Should I Buy A Home With A Friend

 

You and your best friend have been living together since college. It started with a small dorm room and now that you are both thriving in your careers, you have a nice apartment overlooking the pool. As the parade of the “wrong people” stream in and out of your lives, you wonder if it makes sense to buy a home together and enjoy the financial benefits.

Buying a property with a friend is a big decision, but if neither of you foresee a change in your lifestyle in the near future, it might make sense.

Benefits Of Buying A Home With A Friend

  1.      Easier to qualify for a mortgage: Let’s face it two incomes are better than one.  If you are applying with a friend, the lender can consider both applicants income and credit. This can allow you to have greater purchasing power and more choices in the home.
  2.      Shared Costs:  Buying and owning a home can be expensive. Financing a home with a friend means splitting the down payment, mortgage payment, closing costs and costs of ownership.
  3.      Home Equity Profit: Aside from the sense of pride in ownership, the home purchase is also a sizable financial investment. Hopefully the home will appreciate in value during the home ownership time period. Currently the IRS allows a significant portion of the profit to be realized tax free when the home sells. See you tax professional for details.
  4.      Mortgage Interest Deduction: Unlike rent, the mortgage interest portion of the payment is tax deductible. You and your friend will determine how much of the mortgage interest you will each deduct from your taxes. This can reduce your overall housing cost if the deduction is large enough.

Concerns About Buying A Home With A Friend

  1.      Lack of mobility: This is where you must talk about your lifestyle and any future options. What happens if you get that great job offer half a country away? Owning a home with a friend might be more complicated that other types of ownership. Owning a home alone could allow you to sell or rent the home without consideration of another person. Would your friend want a roommate? Would they be willing to sell if you needed to? These are issues to talk about in advance.
  2.      Potential Credit Damage: When you get a mortgage loan, both parties are equally responsible for the mortgage payment. You might be very prompt with your payments each month, but if your friend is not, then you will either be in the position of paying both halves or suffering the consequences of a mortgage late….or worse. Unforeseen things happen in everyone’s lives, if you are planning to buy with a friend, don’t be shy about talking in advance. Understand how much savings are in reserve and the contingency plans if one of the owners has a financial set back.
  3.      Difficulty Obtaining Other Loans:  The entire mortgage loan balance will show up equally on both borrowers’ credit reports. Even though you are only responsible for half the payment and half the balance, this will not be separated on the credit reports. It might appear that you are over extended based on the large loan and make getting credit hard or impossible.

Buying a home with a friend can work and work well. There are huge advantages to homeownership and if you are unable to qualify alone, a friend could be the right solution. The key is to have open, honest and detailed conversations in advance. Understand the potential issues up front and plan for all contingencies. Get some advice from a tax professional as well as an attorney. Make sure your rights are protected and that you have a solid legal agreement about the rights and responsibilities as well as your interest in the home, title. Careful planning will ensure that home ownership is a positive investment for you and your friendship. 

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Rainmaker
1,401,651
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Karen Fiddler, Broker/Owner - You made a lot of great points.  Planning is the key and having an exit strategy and plan is also key.  What happens if one wants to exit?  What is the plan? How are the profits or losses to be split up?  Can one person carry the burden of the loan if something happens to the other. 

Planning to protect the relationship should be a vital force in the process.

Jul 08, 2016 12:55 AM #1
Rainer
375,527
Raymond Denton
Homesmart / Evergreen Realty - Capistrano Beach, CA
Veteran Friendly Realtor®

When I was in my early twenties, several of my friends purchased homes together.  They bought homes that needed work, and agreed to sell the properties 18 months later, after they've been rehabbed.  Some of them did that 3 or 4 times, and it worked out well for them.

Jul 08, 2016 02:46 AM #2
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John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

I think it's a great idea as long as every possible outcome is considered re: one of them losing a job, one of them wanting to move out & the other wanting to stay, etc.

Jul 08, 2016 02:53 AM #3
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Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

While it can be beneficial, it's not something I recommend or would ever consider.

Jul 08, 2016 07:18 AM #4
Rainmaker
1,592,605
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, Blackstone Realty Group - brokered by eXp Realty - Kalispell, MT
The House Kat

It can definitely be a beneficial move, but all aspects should be considered carefully up front!

Jul 08, 2016 11:33 PM #5
Rainmaker
111,696
Anthony Saunchez
Campa Properties - San Bernardino, CA
How can we be of service

In a flip situation I think it is a great idea. In a situation where the friends will be living together it looks like a no-brainer but can get complicated down the road when changes occur. Too often people get in this situation and only discuss the good in detail, all the things that can go wrong need to be discussed as well. If you are prepared for the good and the bad then go for it.  

Jul 09, 2016 02:10 AM #6
Rainmaker
677,352
CA COASTAL ESTATES Lauren Selinsky Perez CRS
California Coastal Estates - Aliso Viejo, CA
"Your Real Estate Broker" #oclauren

I have two properties in TX with a friend from college. Still making money and still friends. (thumbs up)

Hope to see you in two weeks. Our meetUp is scheduled for this month.

ORANGE COUNTY MEETUP 7/25

Jul 09, 2016 09:44 AM #7
Rainmaker
531,001
Karen Feltman
Cedar Rapids/Iowa City, IA KW Legacy Group - Cedar Rapids, IA
Relocation Specialist in Cedar Rapids, Iowa

I have sold several homes to friends for these exact reasons.  It makes sense to them and they know each other so well that they can trust them with their credit and well being.  It can be a great way to get more for your money and not be solely responsible.  Great post.

Jul 09, 2016 01:31 PM #8
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Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Friends thinking of buying together should look at it as a business venture and have a contract created that define everything covering all possibilities.

Jul 15, 2016 12:05 PM #9
Rainmaker
536,932
Mark Don McInnes, Sandpoint
Sandpoint, ID
North Idaho Real Estate - 208-255.6227

Good plusses and minusses to the question.  Kinda like a marriage though, a lot of unseen issues can pop up shortly after.   Mark

Jul 15, 2016 01:38 PM #10
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Karen Fiddler, Broker/Owner

Orange County & Lake Arrowhead, CA (949)510-2395
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