Buying a home with a friend can have some advantages, particularly if you are just getting into the real estate market. However, you should seek out some mortgage advice before signing the papers.
The Pros of Buying a Home with a Friend
There are several benefits to purchasing a home with a friend, including:
Mortgage qualification. Getting a loan has become a little more difficult over the past few years. Changes to lending rules mean that lenders have higher qualifying criteria. You’ll need to have a credit score of around 680 and also place 5 percent as a down payment on the home. This can make buying a house by yourself more challenging. Splitting the risks and the costs with a friend can help you qualify for a bigger loan because the lender will consider your combined income. If you are unsure of all the costs involved, contact a professional for some mortgage advice.
Split expenses. Owning a home can be expensive. You’ll have to pay for monthly utilities, maintenance, repairs, and even land taxes. Sharing these costs with a friend can make a lot of sense.
Equity. One of the biggest benefits of owning a home is that you get to build equity. The longer you and your friend pay the mortgage, the more equity you’ll build. When you are both ready to move out, you’ll end up with some money in your pocket after the sale of the house.
The Cons of Buying a Home with a Friend
While there are some good reasons for buying a home with a friend, there are also some disadvantages. These include:
Moving. If you or your friend have a disagreement and want to stop living together, it can be challenging to move out. You will both have your names on the mortgage. This means you’ll have to sell the home, or one of you will have to try and get the mortgage refinanced on your own. These options can take a long time and be complicated. You should seek professional mortgage advice before you make any decisions.
Credit score. You might be responsible enough to handle your end of owning a home, but is your friend? Missed mortgage payments can damage your credit score even if you made your share of the payments on time.
Reduced credit options. Taking out a mortgage may limit your ability to apply for other loans, such as a car loan. This is because when a lender looks at your debt, they will see the mortgage and it will appear like you are responsible for paying the entire loan. This can increase your debt-to-income ratio and disqualify you from taking out any other loans.
Take it Slow
While it may sound like a good idea to buy a house with a friend, take your time. Find out more about each other’s backgrounds, income, and assets, for example, before you decide if they are trustworthy enough to own property together.
If you are interested in learning more about joint mortgages, call Northwood Mortgage™ at 888-492-3690 or contact us here.