Owning a home has long been one of the pillars of the “American Dream.” And even with increasing numbers of people choosing to rent a home rather than buying one, there are still plenty of folks out there who’d rather make payments on a mortgage, instead of to a landlord.
But between a highly competitive housing market and declining availability of super-low mortgage rates, many people aren’t able to afford to buy something on their own. This has resulted in an increase in friends co-buying property together—especially among millennials, NBC News reports.
Of course, there are certain risks involved with this arrangement (although many of them are the same married couples who buy houses together face), but there are also ways to mitigate them—including going in prepared. Here are a few questions you should answer before buying a home with a friend.
What do you know about your friend’s financial situation?
It’s call “personal finance” for a reason. Typically, the way we budget, spend, save, and invest our money is a private matter, but when buying a home with a friend, you should go in with a clear picture of their financial situation (to the extent that it’s relevant). That includes information like their source(s) of income, other monthly expenses, debts, and credit scores.
Are you on the same page about your future(s)?
This is a conversation you’d want to have before before signing a yearlong lease with someone, so it’s definitely something to discuss before buying a home with a friend. If your plan is to purchase and then live in the house as your primary residence, what would happen if one or both of you ended up in a serious relationship with someone else? Do you both plan on staying in the area, or is someone looking to move in five or 10 years? What about having (and paying for) pets?
Once you figure that out, if you still want to buy a home together, put these details in writing. “If friends or non-married partners are purchasing a home together, they should have a written agreement executed which dictates what will happen if one of the parties wants to sell, if there is a falling out with the relationship, or, God forbid, [one person] dies,” Michael J. Franco, a broker for Compass in New York told BobVila.com.
What will happen when you disagree on something?
When—not if—something comes up where you and your friend(s) don’t see eye-to-eye, it’s best to have an agreed-upon plan in place prior to purchasing a home together. “To avoid this, your written agreement should include details regarding the breakdown of expenses, how repairs and maintenance will be handled, who will do the work, and how the costs will be shared, plus how deductions will be claimed,” Jean Folger writes in an article for Investopedia.
Like any situation where you enter into a long-term commitment with another person, buying a house with a friend has both benefits and risks. But by going in (at least somewhat) prepared, you can cut down on the number of things that could go wrong both now, and in the future.