13 Steps To Buying a House With a Friend

Most first-time homebuyers are married couples, mainly because two incomes are needed to comfortably afford a home. If you’re single and unable to afford a home on your own, you might consider buying one with a friend. While this strategy can allow you and your friend to own a home without a spouse, you’ll want to take extra steps and precautions to ensure your relationship stays friendly if circumstances change.

1. Choose the Right Friend

Buying a home can be the most significant financial commitment you ever make, so choosing a good partner is important. That means your friend needs to be financially stable and responsible enough to keep up with expenses. Financial disputes could sour your friendship and damage your finances. It’s one thing to move in with a lease; there’s more at stake when you have a mortgage to pay.

Also consider how potential future romantic relationships would affect your arrangement.

2. Decide On a Property Type

The next step is deciding which type of home to buy: a single-family house, a condominium, or a townhouse. The kind of home you choose will affect your lifestyle, how much maintenance you’re responsible for, and how much control you have over making changes to the house.

A single-family home offers more space and privacy, fewer rules, and the freedom to build and change it as you wish. However, single-family homes also cost more and come with more financial responsibility since you’ll be on the hook for all maintenance and repairs.

A condo is a unit within a building or residential complex. Condos typically cost less upfront but usually require you to pay homeowners association fees for shared amenities and services.

Townhouses are multifloor homes that share at least one wall with an adjacent property. Townhouses typically offer more space, privacy, and control than condos. They usually cost more than condos but less than houses.

3. Review Each Other’s Finances

Take 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.

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.

4. Figure Out How Much House You Can Afford

Once you’ve gotten a handle on each other’s finances, you’ll need to figure out how much house you can afford.

How much you can borrow depends on your combined income, as well as your credit scores and debt-to-income ratios. It also will be affected by the type of loan you choose, how much you can afford for a down payment, and closing costs.

If you can’t afford a home just yet, make a plan for a down payment and make sure you save enough cash to pay closing costs.

5. Decide How To Split Ownership

There are two main ownership types to choose from when buying a home with a friend: joint tenancy and tenancy in common.

Joint tenancy

Joint tenancy involves each buyer having an equal share of equity in the home. For example, if two people buy a house 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 automatically going to the other owner.

6. Allocate Financial and Household Responsibilities

Homeownership comes with financial commitments beyond the monthly mortgage payment. Some of the typical costs include:

• Utilities: You must pay to keep the lights on, the water flowing, and the internet streaming. Who will pay which costs?
• Repairs: A financial risk tied to homeownership is the potential for unexpected repairs, so make sure you have some cash set aside.
• Renovations:  Home improvements or renovations can be expensive. Consider how you might split these costs.
• Property taxes and homeowners insurance: These expenses are often paid via an escrow account that collects an estimated prorated amount added to your mortgage payment. If you opt out of an escrow account, you must pay them directly. Decide 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.

7. Have a Plan for Splitting Up

Sharing a mortgage means untangling your finances without a plan can be messy. Talk through all scenarios. If possible, create a roadmap for some likely situations. What might happen if one of you loses your job and can no longer afford to pay your share of the mortgage? What if your friend finds an amazing career opportunity that requires a cross-country move?

Get ahead of the situation by creating an 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.

8. Consider a Legal Agreement

Consider drafting and signing a legal agreement that spells out the terms of your arrangement. The contract can include how 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 a contract drafted and reviewed by an attorney can help you avoid misunderstandings and prevent financial conflicts if things change.

“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.”

9. Get Mortgage Preapproval

Mortgage preapproval is a letter from a lender that estimates the loan you are expected to qualify for. While it’s not a guaranteed loan offer, preapproval shows you how much you can borrow and shows agents and sellers you’re ready to buy.  

10. Make a List of Wants vs. Needs vs. Must-Haves

Before you start touring homes, you and your friend will need to get on the same page about your homebuying priorities. Making a list of your wants, needs, and must-haves will help you understand what matters most to you in a home and can help you narrow down your search.

11. Shop For a Home To Buy

Generally, it’s helpful to work with a real estate agent while house hunting. Be prepared to tour many homes before finding one you want to make an offer on. Once your offer is accepted, you and the seller will sign a purchase and sale agreement to make the deal official.

12. Apply For a Mortgage

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. Be sure to shop around and compare mortgage offers.

13. Close On the Loan

On closing day, you’ll need to provide your down payment and sign the documents that transfer ownership of the home to you and your friend. Plus, you’ll pay closing costs, which range from 2% to 5% of the purchase price. Once all the documents are signed and the transaction is settled, you and your friend will own a home together.

Pros and Cons of Buying a House with a Friend

Here are some pros and cons to consider when buying a house with a friend.

Advantages

• 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. You’ll have someone to split the bills with when expenses come up.
• 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.

Disadvantages

• Your friend’s financial situation affects your mortgage approval odds. Your loan application could be denied if your friend has a poor credit score.
• 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.

FAQ: Buying a House With a Friend

You have questions about buying a home with a friend. We have answers.

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, 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.

Rory Arnold contributed to the reporting of this article.