Should You Buy a House With Your Friend? Pros and Cons

Nothing can be more fulfilling than becoming a homeowner. Home-buying can provide a place to stay, whether starting a family or building a career.

But what if you don't have the financial means to purchase a residential property? Aside from your partner or parents, you can seek help from others. Buying a house with a friend has become one of the home-buying trends.

Is it worth trying?

Don't worry. This page discusses the pros and cons of buying a house with a friend. Read to learn how to make informed home-buying decisions.

Key Takeaways

The Pros and Cons of Home-buying with a Co-borrower Friend

Home buying requires proper planning and ample preparation. However, according to Bankrate, today's younger adults face affordability issues with home purchases. Its survey conducted reveals the following:

Bankrate also reported that nearly 54% of aspiring homeowners don't earn enough to afford the purchase. So, this begs the question: 

Can you buy a house with a friend? The simple answer is yes!

It's easy to see that people purchase residential properties and get their parents listed as co-borrowers for their mortgages. The same applies to buying a house with a friend. You can get your trusted friend listed on the mortgage; however, both of you have equal responsibilities on the property.

Jesse Hanson, Content Manager at Online Solitaire & World of Card Games, believes a home purchase with a trusted friend is a good property investment. "Adding your friend as a co-borrower on your mortgage is plausible. While you share equal responsibility, you can capitalize on the property. Should you decide to part ways, you can still turn the property into an income-generating business."

Let's examine the potential drawbacks and possible challenges of buying a property with a friend.

Advantages

A home purchase is a big life decision, so it should come with home-buying wisdom for mortgage success.

Alan Parkes, Owner of Denver Roofing & Colorado Springs Roofing, highlights the potential benefits of buying a house with a friend. "Adding a friend as a co-borrower on your mortgage allows you to rise above the financial challenges of a home purchase."

Parkes cites the following potential benefits:

• Ensured home loan approval: Combining your credit score with that of your friend can greatly boost the likelihood of mortgage approval. This collaborative strategy provides a stronger financial profile to lenders, increasing the chance of receiving a favorable loan.
• Guaranteed financial support: You can make a greater down payment by combining your financial resources with a friend. That could lower the loan amount and obtain better mortgage terms. Co-owning a home also provides for large tax deductions, which reduces the financial homeownership burden.
• Lower living costs: Splitting the utility bills with your friend, such as water, electricity, and internet, reduces your expenses. This shared financial responsibility makes home expenses more manageable and less stressful.
• Long-term companionship: Jerry Han, CMO at PrizeRebel, cites companionship as the prime benefit of a home purchase with a friend. "Living with a trusted friend brings comfort, protection, and security, giving you the utmost peace of mind. This companionship can improve your overall quality of life by providing emotional and practical support."
• Excellent investment opportunity: This move can be a lucrative business. If your friend relocates to live with a partner, you can have the property rented out, providing additional income. Likewise, the property could grow over time, resulting in possible home equity gains and a solid financial return on investment (ROI).

Disadvantages

As explained above, a home purchase with a friend has several potential benefits. However, it also comes with possible risks and challenges.

Here are some possible drawbacks:

• Strictly tied contractual agreements: Entering into a home-buying arrangement with a friend requires detailed legal contracts that describe each party's rights and responsibilities. These binding agreements can be complex, limiting individual flexibility and leading to potential disagreements.
• Possible obligatory disagreements: Living and making financial decisions with a friend can result in fights concerning financial contributions, lifestyle preferences, and property ownership. Unfortunately, these disagreements can hamper collaborative decision-making and strain friendships.
• Potential credit reporting risks: If your friend fails to satisfy their financial responsibilities, it might harm your credit score. Late payments or mortgage defaults will appear on both of your credit reports. That could jeopardize future loan opportunities for both of you.
• Complicated home renovations: Co-owning a home can complicate decisions about renovations and improvements. Both sides must agree on project revisions, expenses, and timelines, which can be difficult and lead to disagreements.
• Other loan approval challenges: While merging credit values can aid in your first mortgage approval, future loans for other purposes might become more complex. Lenders can see the shared mortgage as a liability, limiting your ability to obtain additional financing individually.

Best Practices for Buying a House with Your Friend

Did you know that over 40% of Americans are aspiring homeowners this year? More than four in ten Americans plan to buy a home in 2024 despite average home prices hovering near all-time highs in the U.S. for a couple of years.

If you plan to purchase a residential property this year, you can make this dream home come true with a friend. However, there are home-buying questions you need to ask your friend.

It has gradually been gaining ground in this time and age. However, it's a serious matter that you ought to sit down and brainstorm with your beloved friend.

Here are some best practices:

• Ensure established relationships. Know your friend deeply enough and understand their financial capabilities.
• Be critical when selecting a property. Consider the type, location, and pricing. As a house-buying tip, hang out in the place where you want to buy your property.
• Create legal documents. Include your name and your friend's on both the mortgage and deed. Put everything in writing.
• Get a legal professional involved. Have an attorney review the contracts, and both parties must agree.
• Purchase life insurance. It is the same as getting general contractor insurance for your property. Obtain life insurance for each as well. However, list your co-borrower as a beneficiary to secure your property investment. 
• Set house rules. They should include bill payments, house cleaning, remodeling, acquiring pets, and inviting guests to avoid future disagreements.

Final Words

A home purchase is one of the best decisions you can make. This will provide you with a place to stay for good, and a residential property can also be a good investment. However, approach this decision with financial planning and enough preparation. 

Buying a house with a trusted friend can be such a good idea. But before taking the plunge into this, weigh the pros and cons discussed above. By doing so, you can make informed home-buying decisions.

Remember, your decision should make your dream home come true while maintaining a long-lasting relationship with your friend!