Buying a house with a friend? 4 Crucial Questions You Should Consider

If you’re considering buying a home with someone you’re not married to, you’re far from alone. A recent study found that about 1 in 3 Americans bought a home with someone other than a spouse, and a majority of Americans would consider moving into a home with a loved one, friend or family member. family.

Some of these changes could be due to a broader shift in people’s approach to marriage. In 2020the marriage rate in the United States was 5.1 per 1,000 people, compared to 9.8 per 1,000 people in 1990. There is also the changing financial reality of home ownership. The National Association of Realtors® calculated buying a house now costs 55% more than it did a year ago.

And while there are many good reasons why you should consider buying a house with a friend, there are also several reasons why you should think twice before splitting a mortgage with someone.

We reached out to experts to find out which boxes you need to tick before you sign on the dotted line with your BFF.

1. Put everything in writing first

To protect your bottom line and your relationship, cover all aspects of any real estate deal.

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Agreeing with friends and family on the relative merits of Lady Gagapickleball and gas or charcoal barbecues can be a great base on which to build a relationship, but sharing the same tastes and interests doesn’t mean you’ll share the same approach to finances.

To protect your bottom line and your relationship, cover all aspects of any real estate contract, from purchase to sale, in writing with your co-signer before you even bid on a home. The process of creating a deal will likely teach you a lot of things you didn’t know about your friend.

“You want to put absolutely everything in writing from the start,” says Big Kurt, realtor at Realty One Group in Las Vegas. “You want to know how things are going to work, down to the smallest detail. What if someone wants to rent out half of their garage or part of the house? Who pays for the upkeep of the property, and is everything distributed fairly? What if a major repair is needed and one party can’t afford to pay? »

Have a lawyer review your entire written agreement for anything you may have overlooked and to make sure it’s legally binding.

Bill SamuelChicago real estate developer at Blue Ladder Development, suggests opening a joint bank account.

“You should get an account for shared expenses and contribute to it regularly and equally,” says Samuel. “That and having a clear plan in advance 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

It’s important to stick to a budget if you’re buying a house with someone you’re not married to.

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Before you start your house hunting in earnest, you should have a budget and a maximum amount that you agree not to exceed, no matter what.

Glenn Bruner, president of Ally Home in Detroit, says the budget should include not only the price of the home you can afford, but also how you’ll handle the extra expenses that come with buying a home, such as closing costs, taxes, attorney fees, utilities, maintenance. , and more. Ideally, the breakdown of these costs should be in writing to avoid any future conflicts arising from anticipated or even unanticipated costs.

“Finalizing and sticking to a budget is really important if you’re buying a house with someone you’re not married to,” says Kim Chan, founder and CEO of DocPro. “It’s important to agree on scenarios where a co-owner can’t afford to cover agreed-upon expenses and what happens if a member refuses to keep the agreement.”

Chan also recommends reducing personal risk by purchasing mortgage insurance.

3. Establish how the property will be titled

Tenancy in common and joint ownership with right of survivorship are two types of joint ownership.

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“There are two types of joint ownership when you buy and share a house with one person,” explains Therese Raymond, broker at Smoky Mountain Realty in Tennessee. “Tenancy in common allows you to divide ownership of property along the lines that make the most sense. If one of the partners contributes the majority of the deposit, they can own 70% of the property and the other party can own 30%.

But in this type of agreement, if one of the parties dies, his share does not pass instantly to the other co-owner. Instead, it will become part of their estate, Raymond says.

“Co-ownership with rights of survivorship is simpler,” says Raymond. “This usually happens if you are going to share ownership of the property equally. When one party dies, the other party inherits its share.

4. Tough talk: death and exit strategies

It’s hard to imagine a relationship ending before it’s even begun, but it’s wise to bring it up before buying a house with a friend.

Melanie Hartman, owner of Creo Home Buyers in Maryland, asks several questions you should ask yourself and ask yourself: “If one person wants to move, will the other buy out? Do you ultimately want to rent the house? Or would you prefer to ultimately sell and share the product? »

Most problems can be avoided with honest conversations and clear contractual agreements that establish who covers what and when, what happens if someone’s financial situation changes, and, in the worst case, who will inherit the property. in the event of a person’s death.

These are not fun conversations. But if you want the reality to live up to the dream of buying a house together, they are essential.