Is teaming up with a friend to buy a house a good idea? Here are the pros and cons, plus some tips to make it work.
Pros:
Your combined income and credit scores could make getting a loan easier
You can split monthly expenses
You’ll build equity together
You’ll be able to afford more house
Cons:
If your friend’s credit or savings aren’t in good shape, it’ll affect your loan, too.
Moving out can be complicated
Your credit score could get dinged
Your ability to get another loan could be compromised
Tips:
Rent together first
Even if you're not going to be sharing living space or negotiating cleaning schedules, there's still a lot you can learn about your friends once you move in together.
It pays to be transparent — about finances and everything else.
The people who survive and thrive in the buying-with-friends partnerships were able to do so because no unpleasant surprises were lurking around any corners.
Discussing both 'wants' and 'needs' can save lots of time
You may discover that things you both need are fundamentally incompatible, and that's sad, but it's better than figuring it out after you're paying a mortgage together.
Decide in advance how to handle mortgage interest deductions
But before you go claiming your MID, have a discussion with your housemate about how to split the deduction. (You didn't really think the government would let both of you claim all of it, did you?)
Outline household and financial responsibilities before you start shopping
Document, in writing, what the house rules, household responsibilities, and financial responsibilities will be while you live together.
Involving a lawyer can be a really good idea
Talk to a lawyer, preferably one who's helped more than one set of unrelated people buy a house together. Ask them what scenarios could unfold and how to protect yourself against them.
Talk about where your career could take you
Do some pondering before you commit to buying a house — whether with friends or solo. If you want to avoid capital gains taxes when you sell your home, then you'll need to live there for at least two years.
You may want to consider securing life insurance for each other
Accidents happen, and sometimes those accidents lead to disability or death. Do you and your co-homeowners know what you'd do if one of you were to suddenly die?
Creating an exit strategy can save you a monster headache
Before you go shopping and sign the closing papers together, make sure you know what your exit strategy will be and how you want it to unfold in an ideal world.