Buying a Home With a Friend? 4 Crucial Matters You Should Consider
If you’re thinking about buying a home with someone you’re not married to, you are far from alone. A recent study found that about 1 in 3 Americans has purchased a house with someone other than a spouse, and a majority of Americans would consider going in on a house with a loved one, friend, or family member.
Some of these changes might be due to a broader shift in people’s approach to marriage. In 2020, the marriage rate in the U.S. stood at 5.1 per 1,000 people, down from 9.8 per 1,000 people in 1990. There is also the changing financial reality of homeownership. The National Association of Realtors® calculates purchasing a home is now 55% more expensive than it was just a year ago.
And while there are many good reasons you should consider purchasing a home with a friend, there are also several reasons you should think twice before sharing a mortgage with someone.
We reached out to experts to find out what boxes you should tick before signing on the dotted line with your bestie.
1. Put it all in writing first
Seeing eye to eye with friends and family on the relative merits of Lady Gaga, pickleball, and gas versus charcoal barbecues can be a great foundation on which to build a relationship, but sharing the same tastes and interests does not mean you will share the same approach to finances.
To protect your bottom line—and your relationship—cover every aspect of any real estate agreement, from purchase to sale, in writing with your co-signer before even bidding on a house. The process of creating an agreement will likely teach you a lot you didn’t know about your friend.
“You want to put absolutely everything in writing from the get-go,” says Kurt Grosse, a real estate agent at Realty One Group in Las Vegas. “You want to know how things will work, down to minor details. What if someone wants to rent out their half of their garage or part of the home? Who pays for the upkeep of the property, and is everything split evenly? What happens if a major repair is needed and one party can’t afford to pay?”
Have a lawyer review the entirety of your written agreement for anything you might have overlooked—and to ensure it is legally binding.
Bill Samuel, a real estate developer in Chicago at Blue Ladder Development, suggests getting a joint bank account.
“You should get an account for shared expenses and contribute regularly and equally to it,” Samuel says. “That and having a clear plan upfront to show how expenses will be handled is essential if you want to avoid problems down the road.”
2. Finalize—and stick to—a budget
Before you begin your home search in earnest, you should have a budget and a maximum amount you agree to not exceed, no matter what.
Glenn Brunker, president of Ally Home in Detroit, says the budget should include not only how much home you can afford, but also how you will be managing the additional expenses that come with purchasing a home like closing costs, taxes, lawyer fees, utilities, maintenance, and more. Ideally, the division of these costs should be put in writing to avoid any future conflicts as a result of planned or even unexpected costs.
“Finalizing—and sticking to—a budget is very important if you’re buying a home with someone you’re not married to,” says Kim Chan, founder and CEO of DocPro. “It’s important to agree on scenarios where one co-owner cannot afford to cover agreed-upon expenses and what happens if one member refuses to live up to the agreement.”
Chan recommends reducing personal risk by purchasing mortgage insurance, too.
3. Establish how the property will be titled
“There are two types of co-ownership when you purchase and share a home with a person,” says Theresa Raymond, a broker at Smoky Mountain Realty in Tennessee. “Tenancy in common allows you to split the ownership of the property along whatever lines make the most sense. If one partner contributes the majority of the down payment, they may own 70% of the property, and the other party may own 30%.”
But in this kind of agreement, if one party dies, their share does not instantly pass to the other co-owner. Instead, it will become part of their estate, Raymond says.
“Joint tenancy with rights of survivorship is simpler,” Raymond says. “This typically happens if you are going to split the ownership of the property equally. When one party dies, the other party inherits their portion.”
4. Tough talk: death and exit strategies
It’s hard to imagine the ending of a relationship before it has even started, but it’s wise to broach the subject before buying a home with a friend.
Melanie Hartmann, owner of Creo Home Buyers in Maryland, floats several questions you should be asking yourself and each other: “If one person wants to move, will the other person buy them out? Do you ultimately want to rent the house out? Or would you prefer to ultimately sell and split the proceeds?”
Most problems can be avoided with honest conversations and clear contractual agreements that establish who covers what and when, what happens if one person’s financial situation changes and, in the worst of cases, who will inherit the property in the event of one person’s death.
These are not fun conversations. But if you want reality to live up to the dream of buying a home together, they’re essential.