Saving enough money to buy a house is a challenge. But there’s strength in numbers, and if you’ve found yourself wondering if you can buy a house with a friend, you certainly aren’t alone.
The short answer is yes, you can buy a house with a friend. In fact, more and more Americans are doing just that. From 2014 – 2021, the number of co-buyers with different last names rose over 770%.[1] Unmarried couples account for some of that increase, but for simplicity, we’ll refer to any unmarried co-buyers as “friends.”
For those considering joining this trend, we’ll go over how to buy the house as well as some important considerations to take into account before doing so.
How To Buy a House With a Friend
Unless you and your friend have enough cash between you to purchase a home outright, you’ll likely be co-applying for a mortgage. This is known as a joint mortgage, and it means both of you will be on the hook for repaying the loan.
Keep in mind that this means both of you will need to be able to qualify for the loan. Your debt-to-income (DTI) ratios and credit scores will be important factors here.
There’s no legal limit to how many people can co-apply for a mortgage. However, lenders can set their own limits, and everyone who applies will need to qualify.
You’ll also want to decide how you’re going to split ownership. Below are two of the most popular options.
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Joint tenancy
This gives each homeowner equal shares of the property, regardless of how much each party has invested. So if one person paid the entire down payment for the mortgage, they would still receive the same stake as the co-owner who didn’t make the down payment.
Joint tenancy usually includes rights of survivorship. This is known as a joint tenancy with rights of survivorship (JTWROS). This means that if one co-owner dies, the other one will inherit their share of the property.
If that doesn’t appeal to you, there’s another popular option to consider.
Tenancy in common
Tenancy in common is an ownership structure that offers more flexibility. Co-owners get to decide how ownership shares are divided, and it doesn’t have to be equal. You can split the mortgage payment based on the ownership percentages, although you don’t have to.
Tenancy in common also gives you the ability to name who you want to inherit your share if something should happen to you. That way, your share could pass to a relative – if you’d like – instead of your co-owner automatically taking your equity in the property.
Should You Buy a House With a Friend?
Although this trend is becoming popular, it’s still worth taking a step back to consider all the angles before committing to a mortgage. Here are some pros and cons you need to be aware of.
✅Larger down payment
With two – or more – people pooling their resources together, you’ll most likely have a larger down payment than you would have come up with on your own. The more you put down, the less your monthly mortgage payment will be. Also, if you put 20% down, you won’t have to worry about private mortgage insurance (PMI).
✅Split costs
Dividing the mortgage payment, utility bills and other costs of living among co-owners will reduce your monthly expenses.
✅Build equity
Purchasing a home allows you to start building equity in the property. This is one of the most straightforward ways to build wealth – and teaming up with a friend can make it happen sooner.
✅Shared responsibility
A lot of responsibility comes with homeownership. But with co-owners, it doesn’t all fall on you. If something breaks, you or one of your co-owners might be handy enough for a DIY fix. If not, you can split the repair costs between you, making it more affordable. The same goes for any upgrades you might want to do.
⛔Co-applicant’s credit matters
When applying for a joint mortgage, their credit score will matter just as much as yours. That means if they have a weak credit score, it’ll impact your mortgage rate. And if it’s too low, you might not be able to qualify for the mortgage at all.
⛔Hard to get out
Even without interpersonal drama, life can suddenly change. What if you or a co-owner meet a significant other and want to move out? What if one of you gets a once-in-a-lifetime job offer across the country?
The only way to get one of you off the mortgage would be through refinancing. This can be complicated because the entire burden of the loan would fall on the remaining owner(s). Depending on financial circumstances, this might not be feasible.
⛔Your DTI ratio will be skewed
Although you’ll likely be splitting the mortgage payment in real-life, when it comes to your DTI ratio, you’ll be on the hook for the entire loan. This will skew your ratio, making it higher in the eyes of lenders, which can make it harder to qualify for other loans.
⛔Can strain friendships
Living together can change relationship dynamics – for both couples and platonic friends. There’s also the risk that you might disagree on what to do with the property in the future. For example, one of you might want to sell while the other doesn’t. There’s also the risk of more drastic scenarios, like one co-owner not making their portion of payments.
Questions To Answer Before Buying a House With a Friend
There’s no right or wrong answer here, but a lot of potential upside also comes with very real risk. The best choice will depend on your circumstances and the friend(s) you’re considering buying a home with.
To reduce as much risk as possible, here are some questions we suggest answering before moving forward with the process.
1. Who are you buying the house with?
We mean this literally and in the angsty, existential sense. How much do you trust this person? Will they pay their bills on time? How do you handle heated disagreements? Nobody can predict the future, but past behavior is a strong indicator of future behavior.
If you don’t know the answers to these questions, it’s possible your relationship isn’t ready for this step yet. However, this doesn’t mean it can’t grow or that you aren’t great friends. Buying a house is a big commitment, and the situation simply may not be right.
2. What is everyone’s financial situation?
To get a mortgage, each applicant will need to go through the underwriting process. This will require turning over documents like W-2s, pay stubs and tax returns. Each of your credit histories will also be thoroughly reviewed.
It’s better to know each applicant’s situation before you undergo this scrutiny. That way, everyone can decide for themselves if they’re comfortable co-applying for a loan given the financial health of everyone involved. This can also help you avoid any unpleasant surprises.
3. How will you structure ownership?
Are you planning on a joint tenancy or a tenancy in common? Do you want to evenly divide shares of the property?
These are big, important questions, and it may be worth consulting a real estate attorney – just so everyone is clear on what the agreement is and what it means for each party before moving forward.
4. What happens if one of you needs to move out?
We recommend framing this planning in positive terms, like what happens if you meet someone or get a great job offer? But the plan should also work in more negative circumstances, like if you don’t want to live with each other anymore.
What’s important is deciding how you’ll handle one of you wanting to move out. Will you sell the home or try to refinance as a single tenant? How will profits and responsibilities be split?
Again, nobody can predict the future. So it’s best to have a plan in place for if one of you needs to get out of the mortgage sooner than intended.
Next Steps for Buying a House With a Friend
If you’ve weighed the pros and cons, worked through the details with your friend and decided you still want to proceed, the next steps are fairly straightforward.
- Find a lender: It’s worth taking the time to shop lenders, as they can offer you different interest rates and closing costs. Once you find a lender you like, go ahead and apply for mortgage preapproval. This will strengthen any offers you make and give you a concrete idea of how much you can afford.
- Find a real estate agent: A good real estate agent can be an invaluable resource throughout the home buying process. They can help you with everything from deciding what type of property would best suit your needs to negotiating with the seller.
- Start house hunting: Once you have your preapproval letter and a real estate agent, it’s time to hit the pavement – or the internet – and start house hunting. If you and your friend find a home you love, you can submit an offer that day.
Is it a good idea to buy a house with a friend?
Maybe. If your relationship can handle the added stress, buying a home with a friend can be a good way to start building equity and split the costs of ownership. But if your relationship can’t handle it, or if one of you needs to move out sooner than expected, it can create a tremendous amount of hardship.
How many friends can buy a house together?
There’s no legal limit. However, some lenders set their own limits – four is fairly common – and everyone who applies for the mortgage will need to be approved for the loan.
How hard is it to buy a house with friends?
That depends on the financial situation of everyone involved. If everyone applying has good credit history and a decent DTI ratio, it can be relatively easy to get approved for a mortgage. If just one co-applicant has a bad credit score or DTI ratio, things get significantly more challenging, and it could keep the loan from being approved entirely.
Think Carefully Before Committing to Buying a House With a Friend
Even if you’re doing it with a friend, buying a house is still one of the largest purchases you’ll likely make in your lifetime. Make sure to carefully consider all the ramifications of the decision, both financially and in terms of your relationship, before committing. Once you sign the mortgage, there’s no easy or fast way out of the situation.