Friendships: good. Buying a home: great. Buying a home with a friend? Sometimes it can work well, and sometimes one can get in the way of the other. Check out these pros and cons of co-owning a home with a friend!
Easier Home Loan Qualification
It can be difficult to qualify for a mortgage, especially if you have a low credit score or low income. But you don’t have to let this stop you from your dream home! Co-signing with a friend may help you, as lenders take the average between you to evaluate whether you qualify. What’s more, you will be able to split down payments and closing costs, which can be a huge financial benefit.
Buying a home means so much more than making your monthly mortgage payments. You will have to pay for utilities, repairs, maintenance, and more. And, boy, these can add up faster than you think. But sharing these expenses with friends may cut your burden in half. Which means more money in the bank for you!
Home Equity Gains
As you make your mortgage payments over time, you gain equity. This is the difference between your home’s value and what you owe your lender. When you and your friend decide to part ways, you can use your equity to put into the down payment for your next place.
Mortgage Interest Deduction
When you pay a mortgage, you also get the mortgage interest deducted from your taxes. Buying with a friend allows you to split the deduction to your liking, which means more savings for you. Talk with your friend and lender about the type of ownership you want and what you can get out of it come tax season.
Friends Don’t Always Make Good Roommates
If you and your friend decide your co-ownership is not working out, it can be hard to get out of your situation. The only ways out are selling the home or refinancing under one person’s name, both of which can take months. And if you refinance under your name, there’s no guarantee you will qualify for the mortgage all by yourself. So if you decide to own with your friend, make sure you guys can make it work, because it is a much trickier situation to get out of than if you had simply rented.
Friends Aren’t Always Financially Reliable
You can’t be completely sure that your friend will always be reliable with paying their end of the mortgage. If they suffer a job loss, car accident, or other obstacle, they may not pay their bills, and you will be held financially responsible. Credit agencies will know that neither you nor your roommate could pay your mortgage, even if it’s not your fault. And this can severely damage your credit score.
Difficulty Qualifying for Other Loans
Even if you’re paying part of your monthly expenses with your friend’s help, you are still responsible for the whole mortgage. Having such a large debt-to-income ratio may prevent you from qualifying for auto loans and other kinds of loans. It would be easier to qualify for these loans if your friend co-signed for these as well, but do you really want that?
Bottom Line: Buying a home with friends is a viable option, especially for young people who don’t have the income to support a mortgage by themselves. But even though it looks glamorous in the short-term, you need to think about how this decision can benefit and potentially damage you long-term.
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