4 Things to Consider Before Buying a House with a Friend

It’s no secret housing prices are high. Like, really high. So high, in fact, that affordability is severely limited for many Americans. 

So, some people are getting creative! Today, a growing number of homeowners are now buying a house with a friend. 

Have you considered buying with your BFF? Sure, it sounds like fun. On the surface… After all, who wouldn’t want a perma-friend just down the hall? 

But there’s so much more to this unique housing situation. A house is likely the largest purchase you’ll ever make. Plus, there are hopes, dreams, and emotions all tied in. Not to mention those lengthy legal documents… 

Before you sign on the dotted line, you may want to make sure you’ve done your due diligence. You may want to ask yourself a few key questions and get all your ducks in a row before you officially close: 

Is Buying a House With a Friend Feasible? 

First things first, you may want to vet your friend. After all, there’s no point going down this road if it turns out the two of you can’t afford it anyway. 

Talking about finances can be tricky and uncomfortable. It’s a bit of a taboo topic. One we might even avoid with our closest friends and family members. If you’re buying a house with a friend, though, you may need total transparency. 

Think of it as a business transaction and vet your friend accordingly: 

• Savings. Odds are you’ll need a downpayment. How much can you each contribute? Do they have the funds now? Or will they need some time to save up? 
• Credit score. This little number may be all-important when it comes to homebuying. So, is their score high enough to qualify for a reasonable home loan? If not, can you trust them to improve it? How long might that take? 
• Debt-to-income ratio (DTI). Maybe you’re debt-free. But maybe your friend has racked up some serious credit card debt. What does their debt-to-income ratio look like? And how might it affect yours? 

DTI: Your debt-to-income ratio, or DTI, compares how much you owe each month to how much you earn. You can calculate it by dividing your total monthly recurring expenses (rent, mortgage, credit cards, car payment, student loan or other recurring debt) by your gross monthly income (before taxes).  

• Budget. Homeownership comes with expenses, even after closing day. Are they able to budget for repairs, maintenance, and more? 

Long story short: finances will be critical. It doesn’t necessarily need to be split right down the middle, but neither party should feel put out. 

Is This the Right Friend? 

So, you may be financially compatible. It’s not just about the money, though. 

A home purchase comes with all kinds of legalese. And undoing it won’t be quite as simple as one party up and moving out. Or even quite as simple as breaking a lease. 

If you’re considering buying a house with a friend, you may want to make sure it’s the right friend. Think of this stage as a roommate interview on steroids. A few things to consider include: 

• Compatibility. Could you live with this friend for 15 years? How about 30? 
• Communication. Home-related issues are going to pop up all. The. Time. How’s their communication? Can you trust them to talk it out with you? Or will they just sweep things under the rug? 
• Goals. Your friend might want to fix-and-flip. You might want to stay for decades. Do your homeownership goals align? 
• Expenses. Gutter cleaning, re-painting, HVAC repairs… There may be plenty of expenses, large and small, that come with homeownership. How do you two plan to tackle these? 
• Habits. Maybe they’re a morning person and you’re a night owl. Or maybe they love to host while you prefer a quiet home. Incompatible lifestyles could quickly come between the two of you. 
• Responsibilities. Who will be in charge of cleaning? Or taking the trashcans to the curb? You may want to discuss household responsibilities well before move-in day. Don’t let there be any misconceptions. 

Buying a house with a friend can be a powerful financial tool. Buying a house with the wrong friend, though? An expensive, legally complicated nightmare. You just may want to make sure that this person is trustworthy, compatible, and aligned. 

Buying a House with a Friend: The Right Way 

So, are you sold? If so, there are a few key things you’ll want to keep in mind: 

Property type 

In a traditional, single-family home, you’ll have your own bedrooms but share living spaces. If that’s not up your alley, look into multifamily options. With something like a duplex, you’ll each have your own individual space. 

Ownership 

In other words, who owns what? Buying jointly means you’ll have two main options: joint tenancy or tenancy in common. 

Joint tenancy: An agreement where you’ll each have equal rights and obligations. The asset (your home) will essentially be split down the middle 

Tenancy in common: An agreement where you can each get rights to different percentages of the property. For example, you could split ownership of the home 60/40. 

The right choice will depend on your unique situation and goals. A good starting point might include evaluating what you’re each contributing to the purchase. For example, if you’re paying 80% of the down payment, tenancy in common might make more sense. 

Names on Deed Versus Names on Mortgage 

Legal owners of a home must be listed on the deed. Not everyone on the deed, though, necessarily has to be listed on the mortgage.  

Property deed: A financial document outlining legal ownership of a home. 

If your friend might hurt your ability to qualify for a loan, you may be able to (theoretically) apply for the mortgage loan alone. Then, if you added their name to the deed, they would still be a legal owner. 

Keep in mind that this may be a risky decision. Your friend would have all the rights afforded by homeownership, with no responsibility to the lender. 

Talk it out with your friend and a home finance professional. But putting both names on the deed as well as the mortgage might be your safest bet. 

Documentation 

In the same vein, make sure you line out every single stipulation in a legal document. 

Think about it: when two married homeowners get divorced, there are laws that protect each party. With a friendship breakup? Not so much. 

Hire a lawyer to draw up documentation that covers things like expected payment amounts, non-payment, and move-outs. Then, make sure your friend signs. Do not move forward if you’re not on the same page! 

Final Thoughts 

Buying a house with a friend could fast-track your homeownership journey. Or it could stir up drama and cost you big time. 

If you’re still interested in buying jointly, just go about it the right way. Determine whether it’s actually possible, find the right friend, and do your due diligence. And, most importantly, speak with an experienced mortgage professional. They’ll have the very best tips for your unique situation. Happy hunting!