Millennials take a lot of flak for having killed the housing industry and disrupting the traditional trajectory of American life — that is, buying a home, getting married, having kids. For their part, Millennials say that the current economic climate is to blame for the decline of homeowners. And that claim isn’t without merit.
In fact, it takes an average of 14 years to save up enough money for a down payment on a home. In expensive cities such as San Francisco, San Diego, Atlanta, Boston, and Denver, the average homebuyer would have to save for an astonishing 30 years just to make the down payment — let alone to pay off the mortgage. It’s no wonder so many Millennials do not own homes.
Some people are getting creative when it comes to affordable housing. Tiny homes, houseboats, and full-time RV living are all increasingly popular options. What about buying a house with a friend? Good idea or disaster waiting to happen? Let’s take a look.
Good Reasons to Consider Buying A House with A Friend
The entire process of buying a house — getting approved for a loan, finding the right house in a good location, making an offer, completing all the paperwork — can be daunting. So it’s understandable that you don’t want to go it alone. As such, teaming up with your BFF might sound like a super idea.
Your Pocketbook Will Benefit…
It’s not even necessary to crunch the numbers to know that joint homeownership is going to save you big bucks. After all, you only need to come up with half the down payment and half the closing costs. The monthly mortgage payment, the taxes, and the utility bills — all slashed in half.
Additionally, you and your buddy can probably get more house for the money when you throw your lot in together. After all, the mortgage lender will average your credit scores and calculate your combined incomes.
…and So Will Your Longterm Finances
As a result of splitting the costs, you could very well sock some money away for your future or pay down debt that you have already incurred. You will also gain equity the longer you make mortgage payments. This could enable you to get your own place one day.
Individuals with poor credit scores can often find it difficult to get approved for a mortgage. Joint home ownership can not only work to your advantage at the bank, but paying on a mortgage (or any other loan) is one of the best things you can do to rebuild your credit.
To ensure that everything is equitable, and to prepare for changing circumstances down the line, hire an attorney to draw up a binding agreement. This is not the kind of deal that can be sealed with a verbal agreement, a handshake, or a pinky swear. No matter how close you two are, there’s always a chance that your bond — and therefore your living arrangements — will go south.
Help Around the House
Living with a friend can be beneficial in practical, day-to-day ways, as well. If you can come up with an agreement to share or trade-off chores and home maintenance tasks, everyone wins. Maybe your pal is handy with tools, so she can perform repairs. In return, you take care of cleaning the common spaces or keeping the garden in tip-top shape.
It’s best to agree on the division of labor before entering into the situation, to avoid misunderstandings and even rifts in the relationship.
The Drawbacks of Buying A Home with A Friend
As with any major investment, there are plenty of ways that buying a house with a friend could go wrong. Here are some worst-case scenarios.
There are two options for an unmarried couple when it comes to owning a property together: joint tenancy with right of survivorship, or sharing a title tenants in common (TIC). In the first scenario, you own the home together. If Person A dies, his share of the home is automatically transferred to Person B without having to go through probate.
With tenancy in common, parties can divide the house into shares, with one owning a greater share than another. However, this also means that if Person A wants to, she can sell or give away her share of the property. Person B has no say in the matter. It’s conceivable that they could end up living with a complete stranger.
A Messy Situation
Of course, one major downside of this type of investment is that you and your friend-slash-co-owner will have a falling out. It can be extremely stressful to live in the same house as someone you have bad blood with or are avoiding altogether.
If the argument is irreparable, it’s going to be much more difficult to extricate yourself from the relationship than if you were simply renting an apartment together. One of you could sell their share, in which case the mortgage must be refinanced in the remaining owner’s name. If they cannot qualify and therefore do not get financing, the other person will remain on the mortgage.
The other solution to an untenable living situation is for both parties to sell the house — with all of the stress, potential financial losses, and upheaval that selling any home entails.
Damage to Your Credit Score
What happens if your bestie has a financial crisis, such as incurring a major hospital bill or losing her job? Or unexpectedly needs to move across the country to take care of an ailing parent? Falls victim to addiction or goes to prison?
The mortgage company isn’t going to care if she splits and leaves you holding the proverbial bag. You are still responsible for the full payment amount even if the other owner cannot hold up their end of the deal.
Defaulting on your payments, or going into credit card debt as you rob Peter to pay Paul, is going to have devastating effects on your credit, your finances, and indeed your entire life.
Never enter into an agreement like this one without spelling out all the possible scenarios and making contingency plans.
So What’s the Answer?
Unfortunately, there is no definitive answer to the question of whether buying a house with a friend is a smart move. It depends on your position in life, your relationship with that person, and how much you have to lose. Some people benefit from co-ownership, while others become the protagonist of a horror story or cautionary tale.
Want to check out some properties while you mull the pros and cons? Check out the homes and condos available in South Florida!