Giving up your daily fancy coffee isn’t going to help you buy a house thanks to still-high prices, the mortgage stress test and rising interest rates, but there are still ways of becoming a homeowner.
While there’s nothing wrong with renting, if you do want to buy a home and can’t afford it on your own, you can partner up with a friend or two and enter the real estate market together. It’s becoming more common, with more millennials open to buying a home with friends.
But be warned, this isn’t like renting where you can leave if it doesn’t work out. When buying a home with a friend, you have to sit down, have an honest conversation about many, many things, and sign a lot of paperwork. So if you’re going to buy with a friend, know the pros and cons before you put down a down payment.
While there is a lot you need to consider before partnering up with a friend to purchase a home together, there are many benefits to such an arrangement. There’s a sense of security knowing you’re partnering up with your bestie and you never have to feel lonely.
• Getting into the market earlier
Pooling your resources means you could enter the real estate market years earlier thanks to a bigger down payment, the possibility of qualifying for a bigger mortgage, and splitting home costs like property taxes, hydro and other expenses.
• More space
The bigger the down payment, the more money you can borrow, which means you can likely afford more space. That’s key because even if you’re BFFs, everyone needs their own quiet area. You may not always want to binge-watch the same shows!
• Cheaper than rent (maybe)
With the pandemic creating greater demand for homes, and less inventory available, housing prices have been on the rise, along with interest rates, and rent isn’t much cheaper. If the numbers work, buying a home could be cheaper than renting, but check your numbers first!
• Social interaction
The advantage of buying with a friend is that you have companionship whenever you want it. It can also be far less stressful to share the responsibilities of home ownership with a friend than going it alone.
No matter how close you are to your friends and how well you think you know them, cohabitating with someone always shows you a new side of a person. Make sure you discuss all eventualities before buying a home together to avoid unexpected situations that could lead to big problems.
• Unequal contributions
If you and your friend are contributing the same amount to the down payment and other expenses, then you can split everything 50-50. It gets a little more complicated when the amounts are different. Do you split the value of the home and the associated costs based on how much you’ve contributed? Does the person who put in more money have more say in what happens to the home? Situations like these can cause a lot of friction so make sure you really discuss this, preferably with lawyers and signed paperwork.
• Future partners
A long-term partner can shake up a comfortable living arrangement. If one of you ends up with a partner, that could mean selling the home or going from two to three people in the home. Then you have to have the budget conversation again.
It’s rarely the big things that cause disagreements, it’s typically the little, silly things that fester into massive fights. You and your best friend may love the same food, music, movies, and have the same sleeping schedule, but that doesn’t mean you can live together harmoniously. There might be a quirk or two that could trigger unreasonable rage (it happens) and the next thing you know, you’re threatening to sell your share of the house.
Buying a home with a friend can work out well, but whatever you do, don’t rush it. Buying in haste could mean repenting with thousands and thousands of dollars and a broken friendship.
Not ready to commit to buying a house with a friend? Don’t fret, REALTORS® are here to help! Check out properties for sale or rent in your area to find a home that works for you.