5 Things to Consider Before Co-Buying a Home with Friends or Family

As housing availability remains low and the cost of a new home remains of reach for many in the market, more people are seeking out-of-the-box ways to secure a home of their own. One creative route: Teaming up with family and/or friends to bridge the financial gap.

But can you make such a large purchase with other people without ruining the relationship? Be forewarned: It’s going to take a lot of planning and compromise.

5 Things to Think About Before Co-Buying a Home

What are the best options for co-purchasers who aren’t married?

Some lenders specialize in co-borrower arrangements, but mortgage policies vary depending on relationship, credit, and income structure. Before you co-buy, learn about shared equity platforms and fractional ownership.

“Home Equity Investment (HEI) programs can be a great way for buyers to enter the market, but it’s important to read the fine print and truly understand what you are agreeing to,” said Nicollette Chapman, Zonda’s senior vice-president, national mortgage data solutions.

“If you decide that the HEI route makes sense for you, take the time to compare terms from various organizations. Just like shopping for a traditional mortgage, each investor will have unique guidelines and corresponding appetite for risk. What are the terms of the equity share when you go to sell? If the house loses value, will the investor participate in the loss?”

Financial Transparency and Budgeting

Everyone involved needs to be crystal-clear about the state of their finances and what they can truly afford. This may lead to some uncomfortable conversations about low credit scores and how much equity each person will own. Come to the table prepared and remain neutral as the matter is discussed.

Ensure all parties are transparent on budgets, mortgage approval strength, deposit contributions, ongoing expenses, and how costs such as closing fees, utilities, and taxes will be split. What happens if someone is unable to pay their share or wants to move out? Plan your strategy well in advance. Document the group’s decisions and keep it handy.

Lifestyles and Compatibility

Does one household member work days while another works nights? How will everyone handle the situation to ensure comfort? You’ll need to discuss noise levels, privacy, shared spaces, personal boundaries, overnight guests, and even parenting styles, if there are children in the home.

Will you split the cooking and cleaning duties or trade off, week by week? Does everyone have access to the food in fridge and cupboards, or do you want to separate? How will large gatherings be handled? How will you mediate disagreements? These are all topics to consider long before you sign on the dotted line.

What happens if one co-buyer wants out of the mortgage or home later?

You’ll need to prepare for this situation long before you move in together. Some may have thoughts of this being a long-term living situation, while others are seeking a short-term option before moving elsewhere. You’ll want to invest in a lawyer prior to purchase.

“Buyers should realize that although many times everything goes right, sometimes, things go wrong, said Chapman. “Nobody enters an agreement with the idea that one party will default on their part of the deal.

“Life happens – people get sick, lose jobs, get divorced, etc. When purchasing a home with another party it’s always best to put a mutually agreed upon, written contingency plan in place. This is a big investment, so it’s worth speaking to a licensed attorney on best practices.”

Are you aligned on what you want from this home?

Be honest with each other. Where do you see yourself in five or 10 years? If someone is looking to advance their career by moving from city to city, they may not be the right choice for a long-term owner. Does either party plan to add (or have the possibility of adding) children to their family? Does the house have space to accommodate them, or would they have to seek a different home?

Again, life changes can come unexpectedly. However, having a basic plan of what your world might look like in the next few years can help a lot. If you can create a two-, three-year, or five-year commitment to each other (with well-planned exceptions to cover job loss, health issues, etc.), it may save all of you from headaches down the road.

The bottom line: There’s plenty to consider before co-buying a home with friends or family. You’ll need more time to plan and prepare than the average buyer, so do your homework. Honesty is the best policy prior to purchase and truly think about whether you can go forward with shared homeownership without strife and heartache. However, with some time, effort, as well as a willingness to listen and compromise, you could find yourself in a home co-owned with loved ones, making memories that will last a lifetime.

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