If you want to own a home but just can’t seem to get the capital together for a down payment, don’t have the income to carry payments or don’t have the credit history to get the loan, you might consider purchasing it with a friend.
Two incomes are certainly better than one, and you’ll probably have a better chance if you have another strong candidate applying with you.
People buy houses with friends all the time, and while there is nothing inherently bad about it, you should consider a few things before taking the plunge.
1. For Living or Investment?
The initial discussion and decision to buy a house together will probably provide the answer to this, but make sure you’re both on the same page.
Related: Pay Off Your Home or Invest the Money? I Propose a Compromise
If one friend is thinking it’s a great business investment and the other is envisioning living in the house together, it probably isn’t going to work out.
2. Open Communication
It’s also very important to communicate openly about your financial situations.
Things like credit history, income and future plans are all relevant when it comes to buying a house with a friend.
You don’t want any financial surprises to come along at any point, and you don’t want the other person to suddenly change gears or tell you they are moving to another city to further their career. Obviously, you can’t account for everything that may happen, but knowing the realities of the present is a good idea.
3. House Rules
If you are buying a house with a friend so you can both live there, create a set of house rules that both of you have to follow.
Everyone has quirks and characteristics that annoy other people, and different people have different likes and dislikes when it comes to living arrangements. Things like household chores, the regular state of the home and house guests are important factors to consider to keep a harmonious home if you’ll be living together.
4. Get a Lawyer
It’s a good idea to separate the friendship and business elements and get an attorney. Right from the time you apply for mortgage make sure that every penny spent is properly accounted and documented for.
A lawyer will ensure everything is as it should be on the legal side, and the two of you can feel confident when you sign the contract.
It’s easy to put it all on a handshake, but it’s not the smart thing to do. Even the strongest friendships and relationships can fade and sour, so getting it all done legally with every aspect laid out is the way to go. This way, each party will know their obligations and can buy the house feeling secure that the legalities are all covered.
5. Insurance Policy
Another thing you might want to do is to purchase a term life insurance policy and name your friend and co-owner as the beneficiary.
With this type of policy in place, if anything happens to either one of you, the entire mortgage will be paid off.
It’s not something anyone wants to think about, but that doesn’t mean it’s not the right thing to do.
Related: Why You Should Always Read Your Insurance Policies Carefully
About the Author:
The author of the article is Jeremy Benson. He is a professional finance expert with over ten years of experience in mortgage and financial consulting. He has been writing about finance, mortgage and law since 7 years. Blogging is one among his greatest passions. Follow him on Twitter @jeremybenson19.
Photo Credit: Phil, Shutterstock.com
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