People who co-buy a house with a friend are responding to the lack of affordable housing. Many people are finally realizing that they’ll never be able to comfortably afford a home in a good neighborhood without a second income, and co-buying with friends is the ideal solution. If you’re interested in saving money on housing costs without renting for the rest of your life, here’s how to buy a house with a friend.
Choose someone who can afford their half of the finances
The cost of owning a home today is so high that most people can’t do it on one income. It takes many people ten years just to save for a 20% down payment, and they still struggle to cover all of their ongoing expenses like insurance, property taxes, repairs, and maintenance. Co-buying a house allows you to make a bigger down payment to get better loan terms and more easily cover ongoing costs, but you need to choose your co-owner(s) carefully. No matter how much you love them, a financially irresponsible best friend isn’t a good choice. Choose someone who has a track record of being financially and contractually responsible with a reliable source of income.
Keep in mind that if your co-buyer skips a payment for any reason, you’ll be on the hook for the full amount. If they can’t easily catch up by the next payment due date, it could develop into a pattern that will eventually force you to sell the home.
Treat your purchase like a business partnership
Having a reliable friend to buy a home with is great, but don’t approach the purchase casually. Treat it like a formal partnership with a written contract that outlines defined roles and responsibilities. Before looking for a home, discuss your long-term goals, like whether you plan to live in the house long-term or if anyone sees it as an investment. The more information you clarify up front, the fewer surprise disagreements you’ll have once the home is purchased.
Your partnership contract should also outline ownership percentages and a method for making decisions. If you both own an equal percentage of the house, you’ll need a plan for agreeing on repairs and upgrades. For example, if one of you wants to renovate a bathroom and the other doesn’t, you need a system for making the final call. Some people agree ahead of time that they can make the final decision for their personal spaces. However, disagreements about shared spaces won’t always be easy.
Be transparent about your finances
No matter how much you trust your friend, they might not be completely upfront with you about their full financial position. Don’t find out the hard way. From day one, show each other your complete financial profile transparently. Share your credit score, credit history, outstanding loans, income sources, debts, and bank account statements. If your friend told you they’ve been working full-time for someone for the last three years but in reality they’ve barely been scraping by, that’s a liability for you.
It’s critical to have a solid understanding of how your co-buyer manages their money and how consistent their income is. Freelance work or inconsistent cash flow doesn’t need to be a deal breaker, but it should be discussed honestly.
Don’t automatically accept a huge loan
Just because you can qualify for a massive loan doesn’t mean you should take that amount. Discuss the situation together to determine what monthly payment feels comfortable, and apply for a loan in the appropriate amount.
Decide on ownership structure and equity split
You’ll need to form an agreement with your co-buyer on how you’ll divide equity. Your first task is to choose between joint tenancy or tenants in common. A joint tenancy is an equal ownership structure that automatically transfers the property if one owner dies. Tenants in common allows for unequal ownership shares and is often the choice when one co-buyer contributes a larger portion of the down payment or pays a higher percentage of the mortgage.
Structure comes first
When you combine financial resources with someone you trust, like a family member, co-worker, or carefully selected business partner, you can qualify for better properties and buy your home sooner. However, this arrangement is a legal commitment and should be treated like a professional partnership from the start.
With transparency, structure, and communication in place, you’ll have a foundation that supports both your investment and your friendship.
