Simple Tips to Keep in Mind When Purchasing a Home with a Friend
By Keith Loria
Buying a home is a momentous time in anyone’s life, and today, more and more people are going through the process with a friend by their side. While sharing a mortgage with your best friend may seem like a great idea, there are many things that should be taken into consideration before jumping into a home purchase with a friend.
1. Be absolutely sure. Before agreeing to this life-altering decision, all parties should be willing to disclose their financial information, agree upon the type of home and location they are after, and make sure they are really comfortable with living with one another. If you are having any doubts whatsoever, say something before it’s too late.
2. Hire a lawyer. A contract between the parties is vital, as is listing each person’s name on the deed and the mortgage papers. In addition, the percentage of ownership must be clearly stated in the contract, including details of each person’s share of the down payment and the way in which mortgage payments will be divided. This sets the stage for deciding each person’s share upon sale. Also, have contingencies in place in case the circumstances change for one or both parties.
3. Get pre-approved for a mortgage. Mortgage companies aren’t always thrilled with lending to unmarried or unrelated people who are looking to buy a home together. Odds are those buying a home will need to jointly qualify as co-borrowers on a single mortgage in order to purchase a property held in TIC or Joint Tenancy.
4. Understand each other’s wants and needs. House options, mortgage rates and contract terms will be contingent on each individual’s credit history, financial health and both short-term and long-term obligations, so it’s smart to discuss all of this ahead of time. During the house hunting stage, you may run into issues if you’re looking for two different things. Therefore, it’s crucial to sit down before you even begin looking for homes and list what features are most important to each of you, as well as what each of you is willing to give up.
5. Have an exit strategy. There’s always the possibility that a job may change or a surprising romance could eventually evolve and lead toward marriage. What happens to the house then? This is something that should be agreed upon before the house is bought. Additionally, each person should buy a term life insurance policy and name the other as beneficiary so in the event of death, the whole mortgage will be paid off.
6. Consider the negatives. Make sure you really know your friend as you’ll want to be sure they stick it out through problems instead of walking away from arguments. It’s also important to understand that you don’t get the federal and state protection typically given to married couples. Plus, if one party has credit problems, those financial troubles can become yours, too.
Once everything is agreed to and a mortgage commitment is in hand, things still aren’t easy. It’s hard enough finding the perfect home, but to have to find the perfect home for two is even tougher. If you go into the process with a solid plan and a willingness to not let anything affect the friendship, buying a home together could be one of the smartest things you’ve ever done.
To learn more about purchasing a home with a friend, contact our office today.