Answer These Questions Before Buying a House With a Friend
Home ownership has long been one of the pillars of the American Dream. And even with an increase in the number of people who prefer to rent a house rather than buy it, there are still many people who prefer to pay on a mortgage rather than a landlord.
But with the housing market highly competitive and the availability of ultra-low mortgage rates declining, many people cannot afford to buy anything on their own. This has led to an increase in the number of friends buying property together, especially among millennials, according to NBC News .
Of course, such an agreement comes with certain risks (although many of them involve the same couples who buy houses together), but there are ways to mitigate them, including being prepared. Here are a few questions you should answer before buying a house with a friend.
What do you know about your friend’s financial situation?
It’s called “personal finance” for a reason. As a rule, how we plan, spend, save and invest our money is a personal matter, but when buying a house with a friend, you should have a clear understanding of their financial situation (to the extent that is relevant). This includes information about source(s) of income, other monthly expenses, debts, and credit scores.
Are you on the same page about your future(s)?
This is a conversation you wish you had before signing a year’s lease with someone, so it’s definitely worth discussing before buying a house with a friend. If you are planning to buy a house and then live in it as your main residence, what happens if one or both of you have a serious relationship with someone else? Are you both planning to stay in the area, or is someone planning to move in 5 or 10 years? How about having (and paying for) pets?
Once you figure this out, if you still want to buy a house together, put those details in writing. “If unmarried friends or partners buy a house together, they must have a written agreement that states what will happen if one of the parties wants to sell, if there is a quarrel in the relationship or, God forbid, [one a person] dies,” Michael J. Franco, Compass broker in New York, told BobVila.com .
What happens if you disagree with something?
When—not if—something comes up that you and your friend(s) disagree on, it’s best to have an agreed plan before buying a house together. “To avoid this, your written agreement should include details of the breakdown of costs, how repairs and maintenance will be done, who will do the work and how the costs will be allocated, and how deductions will be required,” writes Jean Volger. in an article for Investopedia .
As with any situation where you enter into a long-term relationship with another person, buying a house with a friend has both benefits and risks. But by coming in (at least partially) prepared, you can reduce the number of things that can go wrong, both now and in the future.