Purchasing a home with a friend comes with both pros and cons. It is important to consider both sides of the equation before entering into an arrangement to do so. It is equally important to note, too, that lenders will examine an application between two or more borrowers who happen to be friends or acquaintances more cautiously than they would for those involving a spousal, common-law, or familial-based relationship. Sadly, friendships can be fleeting, and do not always come with the same contractual rights and obligations as the aforementioned relations. Alternatively, the added companionship, shared common expenses and household duties, as well as household repairs, can lessen the stresses that come with owning a home on your own.
So, what are some of the pros associated with buying a home with a friend? One of the biggest barriers to owning a home in today’s market, is the purchase price. Saving a down payment and closing costs while paying rent, or just balancing your everyday cost of living, can be difficult for many. Aside from pooling resources for the down payment, if you are successful in entering into an agreement to purchase a home, there will be new expenses, such as the mortgage payment itself, property taxes, insurance fees, and eventual home repairs or renovations to consider. Buying a home with a friend can help to cut these expenses in half, depending on your mutually agreed upon arrangement.
Affordability is a major factor in determining a home’s purchase price and corresponding allotted mortgage size. By having a second person on your mortgage application, in more cases than not, you will likely qualify for a larger purchase price than you would have on your own. In this scenario, the lender takes into consideration the overall income levels of both applicants together when reviewing your file. In a sense, two incomes are better than one!
On the flip side of income, is debt. It is important to know how much debt each applicant is carrying—will you be able to split the bills equally, or does an adjustment need to be made for a difference in income levels or debt repayment? A mutually agreed upon budget is key to avoiding frustrations at a later date.
Owning a home doesn’t just cost you money… it also costs you time. Repairs to both the interior and exterior of the home are all obligations that you, as the homeowner, are responsible for. When purchasing a home with a friend, you will be able to divide chores and tasks as you see fit, or tackle items on the ‘to-do” list together.
But what if you and your friend do not view the necessity of a repair, renovation, or even day-to-day cleanliness, in the same light? Disagreements surrounding matters like these can ruin friendships and living arrangements—again, plan ahead, and make sure that you ask one another these types of questions prior to making such a big decision.
On a similar note, another potential downside to consider is the lifestyle of the friend you are choosing to move in with. If you haven’t lived with this friend before, or known them for an extended period of time, how do you know if their lifestyle will align with yours? In addition to cleanliness and renos, where do they stand on pets, keeping late hours, children and house guests, etc.?
While it is important to think of these types of questions for yourself, mortgage lenders, too, will present you with a similar line of questioning. A lender will want to know that you and your friend have thoroughly discussed matters such as “What will happen in the future if one friend wants to sell, and the other does not?”, “Are the friends prepared to assist one another in the event of job loss or financial difficulty?”, “What will happen in the event of one of the friends wanting to move a partner into the home?”. These questions emphasize the importance of having a well-laid out plan prior to looking for a home and meeting with a lender.
Purchasing a home with a friend shouldn’t be a spontaneous decision. There can be a lot of room for error when entering into a large financial decision, such as homeownership. When you add in the complexities of friendships, this is only exacerbated. To increase the odds of a friendship-based home purchase arrangement working out well in both parties’ favours, there should be full disclosure of monthly financial obligations, future house budgeting plans, as well as generalized ground rules and expectations for owning the home. Instead of working on your own five-year forecast for your future, you must take your friend’s forecast into consideration, too, and make sure that these visions align, or complement one another in a mutually beneficial fashion.
If you want more information about this blog or have questions related to purchasing a home with a friend, call the shopmortgages.ca team at 519-250-4848 or fill out the contact form below.