Things to Consider Before Buying a Home with a Friend
Date: November 14, 2018
High home prices, tighter lending restrictions and the need for a large deposit have some people considering buying a West Chester or Liberty Township home for sale with one of their friends. Because let’s face it –many people, especially if they don’t have any financial help from their family, simply can’t buy a home on their own otherwise.
If you’re thinking of buying West Chester or Liberty Township real estate with one of your friends, it’s important that you’re both away of your rights and obligations – and what you will do if one of you wants out. At the end of the day, while it’s great to own a home, you also want to be sure you protect your friendship.
Here are some of our top tips for those looking to buy a home jointly with a friend:
Be upfront financially
Before taking out a mortgage with someone else, you’ll both need to be upfront about your financial affairs. Ask your friend to check their credit history as soon as you can as it could affect your plans together. For example, if they have a bad credit score due to missing payments in the past, this could result in a joint application being refused by a lender.
Try renting together first
Buying a West Chester or Liberty Township home for sale with someone else is a huge commitment! This is not something you should do unless you are completely confident that you can trust the person you are buying with.
Before buying a home, why not try renting with each other for at least six months first? This will give you a good idea as to whether you are compatible as housemates, and will give you insight into how the other person manages their finances. If they struggle to meet their rent payments, then you need to think very carefully about whether you should buy with them.
If one person doesn't pay their share of the mortgage, or any other bills held in joint names, it is both applicants that will be chased for the debt. That means if one of you stops or is unable to pay their share of the mortgage, the other will somehow still have to keep up the payments or risk losing the roof over their head.
Work out what you can afford
Once you have decided to bite the bullet and buy a West Chester or Liberty Township together, work out your budget. Look at how much you can each contribute towards a deposit, and how much you are likely to be able to borrow.
Most lenders will let you borrow three times your joint income, so if you each earn $50,000, then you should be able to get a mortgage of $300,000, provided you have a big enough deposit. You should aim to put down a deposit of 20% of the West Chester or Liberty Township home’s value if possible, as this will get you a much more competitive rate than if you only have a 10% deposit.
Bear in mind that if you are buying with more than one person (lenders will often allow up to four people on a mortgage application), most lenders will only factor in the top two incomes in their affordability assessment.
Figure out how you want to “own” the property together
Once you have worked out how much you can afford to spend on a West Chester or Liberty Township home for sale, you will then need to think about how you will own the property. If you own your property as joint tenants, this means that it belongs to you and the other owner jointly. You can't re-mortgage or sell the property without the agreement of the other owner.
If you own your property as tenants in common, however, it still means that it belongs to you and the other owner jointly, but also that you own a specific share of its value. You can give away, sell or mortgage your share, so most people buying together as friends opt for this route.
Discuss what will happen if one of you wants out
It’s essential to discuss what you will do if one of you wants out of the property. If one of you wants to move on, then the remaining person will effectively have to buy you out. That person will need to buy out the equity stake of the person who is leaving and will also have to show the lender that they can afford to take on the mortgage on their own.
If this isn’t going to be feasible, then your only option is for your friend or partner to sell their share to someone else, or for you to both agree to sell the property and split any proceeds.
If you’re thinking of buying a West Chester or Liberty Township, OH home for sale with one of your friends, give us a call. We’d be happy to talk you through your options. As the top real estate agents serving West Chester and Liberty Township, we work with clients in all sorts of circumstances – those who want to buy with friends, with family, with their significant other, or simply by themselves! We’re just a phone call away when you’re ready to get started.