What to consider before pursuing home ownership with friends.

Michigan’s housing market is more affordable than many other states, but that doesn’t make it affordable for everyone. This leads some people to consider buying a home with a friend. Shared ownership by unrelated individuals of a single-family home, duplex or condo is possible, but buyers should not jump in too quickly. Consider the following before buying a house with friends.

How will you finance the home?

Unless you and your prospective co-owners come to the table with enough cash to cover the purchase price, you’ll need to get a home loan. A lender will evaluate the credit score, income and debt-to-income ratio of all co-owners on the application. Pooled income qualification could help you get a larger mortgage than you could on your own. Conversely, a co-applicant with a low credit score could mean paying a higher interest rate.

How will you split chores and expenses?

You may already have experience sharing expenses as co-renters. However, homeownership comes with additional tasks and expenses. Have in-depth conversations about:

• how bills get paid
• how do you handle chores like cleaning, putting out trash and lawncare, as well as maintenance tasks like changing HVAC filters and cleaning gutters
• what happens when there’s an unexpected repair needed, like an appliance breakdown
• how much will you keep in an emergency savings account and what should this money be used for
• how will you approach upgrades and décor decisions and purchases
• how will you prepare financially for improvements to the house such as a new roof

Who else can live in the home?

Co-owners need to consider how they feel about sharing the home with others. Is it okay if a co-owner’s new partner moves into the house? How about a minor child? An adult child? Don’t assume you’ll figure this out later. Have a heart-to-heart about who you’re willing to accept in your home. And, if you agree to allow others to move in, talk about how that will affect shared spaces and expenses.

Have a plan if situations change

Life isn’t predictable so it’s wise to have a plan if someone wants out. Does one friend buy out the other and refinance the loan? Can the person moving out rent out their space? Decide together how you’ll address a situation where one buyer wants or needs to step away from shared ownership.

An alternative to buying a house with friends

Buying a home with friends can be very complicated and could even cause relationships to suffer. Another route to homeownership is to buy a home and rent out rooms to your friends.

A lease arrangement is far more flexible in the face of changing circumstances. Your friend needs to move for a job in different state? No problem; you can end their lease and find a new renter.

Many people find that hybrid ownership/rental arrangement helps preserve relationships and provides a path to owning a home.   

 

 All loans subject to approval. Rates, terms, and conditions are subject to change may vary based on credit worthiness, qualifications and collateral conditions.