Most people’s image of the typical first-time homebuyer is a married couple or family. And while that image is bolstered by statistics — 60% of homebuyers in 2022 were married couples — anyone who has the money can buy a home.
If you can’t afford to buy a home on your own — the median sales price of houses sold in the U.S. was $467,700 in the fourth quarter of 2022 — you might ask, Can you buy a house with a friend?
While partnering with a friend can help both of you afford to buy a home and start building equity, there are precautions you’ll want to take when making a financial commitment of this magnitude to ensure both parties are protected in case the situation changes.
Here’s what you need to know about buying a house with friends:
- What To Consider Before Buying a House With a Friend
- 6 Steps To Buying a House With a Friend
- Pros and Cons of Buying a House With a Friend
- FAQ: Buying a House With a Friend
- The Bottom Line on Buying a House With a Friend
What To Consider Before Buying a House With a Friend
Buying a home is a major financial commitment — one that comes with additional considerations when a friend is involved. Here are some key factors to consider before deciding whether or how to buy a house with a friend.
Type of ownership
There are two main ownership types to choose from: joint tenancy and tenancy in common.
Joint tenancy involves each buyer having an equal share of equity in the home. For example, if two people buy a home together, each would own 50% of the property. If one owner dies, their share of ownership would pass to the other owner.
Tenancy in common
Tenancy in common allows for unequal ownership shares. For example, you could own 70% of the property while your friend owns 30%. Each owner has the right to leave their share of ownership to the beneficiary of their choice, instead of it automatically going to the other owner.
Joint Tenancy vs. Tenancy in Common
|Type of Ownership||Ownership Stake||Legacy|
|Joint tenancy||Each buyer has an equal share in the property.||Ownership is transferred to surviving owner.|
|Tenancy in common||Unequal ownership shares are allowed.||Ownership shares may be transferred to a beneficiary.|
Even if you plan to buy a home with a close friend you’ve known for years, take the time to think about how your relationship may change in the future.
Here are a few common scenarios to consider:
- Significant others: While you both might be comfortable as roommates for now, consider what might happen if one of you invites a significant other to move in, or gets married. What might happen if you don’t want your friend’s spouse to move in?
- Personal space: Are you both willing to live in relatively close quarters for the foreseeable future? If not, buying a multifamily property where you each could have a private unit might suit you both better than buying and sharing a single-family home.
- Jobs and careers: Consider what might happen if one of you loses your job and can no longer afford to pay your share of the mortgage. Or what if your friend finds an amazing career opportunity that requires a cross-country move?
Sharing a mortgage means it’s messy to untangle your finances without a plan. Talk through all scenarios. If possible, create a roadmap for some likely situations. For example, you might both agree to sell the home if either of you wants a significant other to move in, or if one of you decides to move out, they would sell their share to the other.
Homeownership comes with financial commitments beyond the monthly mortgage payment. Some of the common costs include:
- Utilities: You must pay to keep the lights on, water flowing, and internet streaming. Who will be responsible for these costs?
- Repairs: A financial risk tied to homeownership is the potential for unexpected repairs.
- Renovations: Do you want to update the space? Home improvements or renovations can be expensive. Consider how you might split these costs.
- Property taxes and homeowners insurance: These expenses often are paid via an escrow account that collects an estimated prorated amount that is added to your mortgage payment to cover these costs. If you pay them another way, you’ll want to know who’s responsible for making sure these bills are paid on time and in full.
- Maintenance: Even if nothing breaks, ongoing home maintenance is an expense. From swapping out lightbulbs to keeping the landscaping in check, it’s helpful to have a plan for these costs.
Talk through the logistics of splitting your shared homeownership expenses so you can be on the same page before jumping in.
6 Steps To Buying a House With a Friend
If you’re ready to move forward, here’s how to buy a house with a friend.
1. Review each other’s finances
If you are co-signing a mortgage application with a friend, it’s critical to be open with each other about your financial situation.
Take the time to review each other’s finances. Both parties should share their income, how much debt they have, their credit history, and their credit score. Make sure you both have sufficient income to afford your share of the expenses. You can use our debt-to-income ratio calculator to help you evaluate your finances and figure out how much you can afford.
You also will need to make a plan for a down payment and ensure you have enough cash to pay closing costs.
Additionally, be clear about your financial goals. Whether you’re looking at homeownership as a way to build wealth or to lock in your housing costs for the long term, make sure it’s clear to your co-buyer.
If your friend has more debt than you like, a spotty credit history, or anything else that unsettles you, don’t ignore that gut feeling. You want to be confident that your friend will live up to their end of the deal before buying a home together.
2. Consider a legal agreement
If you’re diving into homeownership with a friend, consider drafting and signing a legal agreement that spells out the terms of your arrangement. For example, the contract can include how home repair expenses will be split, who can live on the property, the steps for a buyout option, and more.
This may seem unnecessary if you and your friend get along well, but having in place a contract drafted and reviewed by an attorney can help you avoid misunderstandings and prevent financial conflicts.
“You need a contract,” says Tomas Satas, CEO at Windy City HomeBuyer in Cicero, Illinois. “Outline every detail from payment to responsibility for the utilities to interior design to how to handle home improvements. The more you have in writing, the less gray area there is, and the less chance there is of an ugly disagreement or litigation. I know you trust your friend, but you must have a contract.”
3. Make an exit plan
A home purchase can tie up a significant portion of your financial bandwidth. If a change requires one of you to move out, consider how that might affect your arrangement.
Get ahead of the situation by creating a shared exit plan. For example, you might plan to buy your friend out of the deal at some point. Or you might both intend to sell the property after a set number of years and share the profits. Talk through possible solutions with your friend, and put it in writing.
4. Start shopping for a home to buy
If you’re both comfortable with moving forward, start your home search with a shared list of preferences. Start with deciding whether it’s best to buy a house, condo, or townhouse, and get on the same page about the location, style, and size of the home. Generally, it’s helpful to work with a real estate agent while house hunting. Be prepared to explore many listings before finding the right home to make an offer on.
5. Choose and apply for a mortgage
When buying a house with a friend, both of you will need to agree on which type of mortgage is right for you. Be sure to shop around and compare mortgage offers.
When you apply with a mortgage lender, both of you will need to provide financial documents, including information about your income, creditworthiness, and more. If possible, gather the necessary documents ahead of time to streamline the process. For example, you’ll need to submit your W-2 forms, tax returns, pay stubs, bank account statements, investment account statements, and more.
6. Close on the loan
On closing day, you’ll need to provide your shared down payment and sign the documents that transfer ownership of the home to you and your friend. Plus, you’ll be expected to cover closing costs, which range from 2% to 5% of the purchase price. Communicate about closing details with your friend, and make sure that someone brings the appropriate amount of money to the closing table.
Pros and Cons of Buying a House with a Friend
Every financial decision has advantages and disadvantages. Here’s what to keep in mind about buying a house with a friend.
- Increase your purchasing power. Combining incomes can make it easier for both of you to afford a home.
- Split homeownership costs. Both owners can share the financial burden of homeownership. When expenses come up, you’ll have someone to split the bills with.
- Get started with real estate. Instead of paying rent, you can start building equity.
- Live with a close friend. If you enjoy living with your friend, you’ll make memories to last a lifetime.
- Your friend’s financial situation affects your mortgage approval odds. If your friend has a poor credit score, your loan application could get denied.
- The stress of homeownership could strain your friendship. Homeownership comes with financial pressure, which can take a toll on any relationship.
- Your friend’s mistakes could affect your credit score. If your friend misses a mortgage payment, both of your credit scores could take a hit.
- Difficult to move out. When your finances are closely tied through homeownership, it’s often a challenge to move out without some stress.
Pros and Cons of Buying a House with a Friend
|Increase purchasing power.||Your friend’s financial situation affects your mortgage approval odds.|
|Split homeownership costs.||Stress of homeownership could strain your friendship.|
|Get started with real estate.||Friend’s mistakes could reduce your credit score.|
|Personal benefits of friendship.||More difficult to move out.|
FAQ: Buying a House With a Friend
You have questions about buying a home with a friend. We have answers.
Yes, it’s possible for a group of friends to buy a home together. The catch is that your combined income and financial situation must meet a lender’s criteria.
Buying a home with friends can come with many benefits. With two incomes, it might be easier to qualify for a home loan. Plus, you can split the costs of homeownership while building equity in real estate.
However, the decision isn’t without its pitfalls. If one friend has to move out due to life changes, both buyers experience some risk.
Yes. Two friends, or an unmarried couple, can purchase a home together. When applying for a joint home loan, the lender will consider both of your financial details.
The Bottom Line on Buying a House With a Friend
A home purchase is a major decision. If you have a rock-solid friendship that can withstand the stresses of homeownership, then buying a home with a friend could make the jump to homeownership easier. Before diving in, talk through all the potential pitfalls with your friend.