Learn the many legal and financial considerations that experts advise before purchasing a home with friends.
Candra Huff
Buying a home with friends can be an exciting and cost-effective way to build equity and wealth.
However, there are also challenges.
Credit:Candra Huff
For example, the credit scores of all the owners will affect mortgage approval and interest rates.
Financial responsibility is needed over the long term to maintain monthly payments and minimize risk.
Here are some things to consider before buying a home with friends so you might make an informed decision.
Is Buying a Home with Friends a Good Financial Decision?
But, after the initial purchase, reality sets in.
“Anyone that isn’t related needs to work with a real estate attorney to draft an operating/equity agreement.
It’s like a prenuptial agreement but for property.
It outlines every possible scenario and protects the investment,” says Nazinitsky.
When friends come together over financial assets, their verbal agreements need to be clarified and binding.
Setting up an operating agreement even before closing on the house can minimize tensions and clarify expectations.
Review credit reports and income together to verify youre really a good financial fit.
One of the biggest factors to consider is how well you truly know the people youre buying with.
These life changes can create instability in homeownership, so its important to plan for them in advance."
Not doing so can trigger costly legal battles in probate court.
Household Maintenance and Upkeep
Another critical consideration is the upkeep of the property, says Levoritz.
Different people have different levels of cleanliness and expectations abouthousehold responsibilities.
Will everyone maintain the property equally, or will a housekeeper be needed?
Who will be responsible for maintenance and repairs?
Have these conversations early and write them down for accountability.
After all, the ideal design for shared living might not photograph well or appeal to every buyer.
Dont forget to look for a home that has multiple entrances, adequate parking, and storage space.
A well-drafted management agreement can help.
This agreement should clearly state under what conditions the property can be sold.
This prevents remaining owners from being forced into an unwanted situation.
This can be done through refinancing, taking out a new mortgage, or another financial arrangement.
The goal is to avoid a situation where one owner leaving forces everyone else out.
You should also set rules around bringing in new co-owners.
Because most mortgages have 20-30-year terms, the financial commitment to a real estate decision is heavy.
Friends have to think about how co-owning a home will affect their lives for decades to come.
