Buying a Home for the First Time With a Friend

Anbarasan Appavu

While some friendships are transient, others are enduring. When you find a lifer, it may make sense to combine significant aspects of your lives, such as buying a home.

Buying a Home for the First Time With a Friend

You may intend to share the home as your primary residence, or you may wish to buy a vacation home. Before buying a home with a friend, there are numerous advantages and disadvantages to consider.

• Buying a home with a friend who is qualified can increase your purchasing power.

• You must decide collectively on the type of title that best meets your requirements.

• However, potential drawbacks include the possibility of a fallout with a friend and a complex financial situation that could harm your credit.

What is the need for Buying a Home For the First Time With a Friend?

Buying a home with a friend can be a smart move. Nonetheless, it is essential to enter the contract with caution.

Martin Boonzaayer, CEO of The Trusted Home Buyer, told in an email that one of the biggest issues with buying a home with a friend is that friendships don't always last forever. "If something occurs, like the friend's departure, there will be a conflict with the home. This can be resolved relatively easily when renting a space with roommates, but it is more difficult when owning a home."

Examine the advantages and disadvantages of buying a home with a friend before you schedule any viewings.

Both the Pros and Cons of Buying a Home For the First Time With a Friend


• Increase your purchasing power

• Eliminate mortgage insurance

• Begin to build equity


• Expose yourself to risk

• Raise your ratio of debt to income

• Consider potential future issues

Pros Explanation

Increase your purchasing power:

Buying a home with a friend may increase your purchasing power. You can pool your resources to qualify for a larger mortgage than either of you could individually, allowing you to afford a more expensive home. However, your credit score and income will also impact the amount you can borrow.

Do not buy mortgage insurance:

If your down payment is less than 20% of the home's purchase price, private mortgage insurance (PMI) is required. It can range from 0.5% to 6% of the purchase price and protects the lender if you default on your payments. However, teaming up with a friend could make you better equipped to make a 20% down payment and avoid the added expense of PMI.

Begin building equity:

If you want to buy a home with another person but don't have a spouse and can't wait, partnering with a carefully selected friend may be a good option. Instead of spending money on rent each month, it can help you begin to build equity.

Share living expenses:

In addition to splitting the cost of your down payment but also monthly mortgage payment, you and your friend could share other costs associated with home ownership, such as your electricity, gas, trash, and water bills.

Cons Explanation

Expose yourself to risk:

One of the disadvantages of buying a home with a friend is that it exposes you to risk. You will both be on the mortgage, so if your friend defaults, you will be solely responsible for making the payments.

Increase your debt-to-income ratio:

Your debt-to-income ratio (DTI) indicates how much debt you have relative to your income. The greater it is, the more difficult it may be to obtain financing. Therefore, it is essential to consider how buying a home will affect your DTI and, consequently, your ability to borrow for future purchases.

Consider potential future issues:

Despite the fact that you may have considered every aspect of qualifying for and dividing the mortgage, it is essential to consider survivorship and inheritance issues. These can be challenging conversations to have, but it is best to have them before entering into a contract.


While both of you may enter the agreement with the best of intentions, unforeseen circumstances may arise, such as one of you losing their job or experiencing a medical emergency. It is essential to consider what you would do in such a situation, such as refinancing, selling, or renting out rooms.

How Buying a Home for the First Time With a Friend Works

What should you do if you decide that buying a home with a friend is the best course of action?

Find the Right Lender

As with any loan, it is essential to conduct research to identify the best lender. Compare and contrast the loan products offered by various lenders, as well as past borrowers' opinions. Look for a lender that provides loan products that meet your needs, competitive interest rates and fees, and positive customer reviews.

Apply jointly

To buy a home with a friend, you must submit a joint application to your chosen lender. The lowest credit score will typically be used by lenders to evaluate your application. If your combined income is sufficient to cover the payments, the application can be approved regardless of who earns more. You should get pre-approved so that you know beforehand how much home you can afford and to demonstrate your seriousness to sellers.

Discuss the Details

Before you begin looking at homes, it is also a good idea to sit down with a friend and discuss the specifics of homeownership.

• How you'll split the mortgage payments and also where they'll come from (such as a joint bank account)

• How you'll both handle the costs and responsibilities such as home insurance, maintenance, and repairs.

Include Everything (Official) Writing

Create a legally binding agreement that will protect both parties in the event of future disputes or problems.

"If this sounds like a prenuptial agreement, that's because it is," Boonzaayer said. "If a prospective homeowner dislikes the sound of that, I strongly advise them not to buy a home with a friend."

Select Your Title Type

You and your friend will also need to determine the type of property title you desire. Joint tenancy and tenancy in common are the two common types used in this scenario.

With joint tenancy, all owners have equal rights and responsibilities; they share full ownership of the property and also joint tenants have the right to survivorship. Therefore, if you die, your friend becomes the sole owner, and vice versa.

Each person in a tenancy in common owns a fractional share of the property (which does not have to be equal). Either owner may sell their share without the other's permission. Moreover, no automatic survivor rights exist. Your interest in the property will pass to your estate or heirs upon your death.

The type of title you choose will affect what happens with the property in the future, so it is essential to weigh your options carefully. It is also advisable to consult a real estate attorney for situation-specific advice.

Shop for Your Residence

Next, search for a home that satisfies your and your friend's needs and desires. After getting pre-approved, you will know how much you can afford, allowing you to search for homes within your price range. Once you've found him or her, the two of you can make an offer.


Including a home inspection contingency in your offer will allow you to back out of the deal or demand that the seller fix any major issues before you commit.

Complete the Sale

If your offer is accepted, you and your friend will both participate in the closing process. You will both need to sign the paperwork as co-borrowers, and you will share equal responsibility for paying off the mortgage in full.

What can be Expected During the Closing Process

Between the time your offer is accepted and when you and your friend receive the keys, the closing process occurs. Closing involves a many steps, which can include:

• Open an escrow account to hold the funds and documents during the closing process

• Deposit earnest money

• Perform a title search to ensure that it has no claims

• Purchase the title insurance to protect against title defects

• Hire a real estate attorney who can create a contract for you and your friend, as well as to protect your interests in the sale

• Negotiate closing costs and ensure that there are no hidden fees

• Get a home inspection to ensure that the property is in good condition

• Review the paperwork and sign it if everything is in order.

The duration of the closing procedure will depend on the presence of issues such as undisclosed water damage, title claims, or pests. According to Ellie Mae's "Origination Insight Report," the average purchase closing time was 50 days.

Be sure to perform your due diligence and ensure that all of your i's and t's are dotted and crossed. A real estate attorney can help protect both parties' interests.

The Bottom Line

Buying a home with a friend can increase your purchasing power and allow you to buying a home sooner than you could on your own. However, there are risks involved. Before going shopping, you and your friend should have an open and frank discussion about your respective financial situations and credit histories. In addition, be sure to address what-if scenarios and how you would respond.

Don't forget to outline the various terms of your agreement in a legally binding contract if you're on the same page and ready to move forward. Even if you are friends and trust one another, a contract is advisable for any long-term business arrangement.

Buying a Home For the First Time With a Friend FAQs

How do you safeguard yourself when buying a home for the first time with a friend?

Before buying a home with a friend, it is prudent to investigate their finances and any potential obstacles (such as debt or poor credit). Also, discuss the various aspects of homeownership to ensure that you and your partner are on the same page.

Boonzaayer advised contacting a lawyer to create legal documents that establish financial ownership and responsibilities for the home if you decide to proceed. Even if there is a deviation from the plan, agreements can be reached on how to sell the home.

What questions should we ask when buying a home?

When buying a home with a friend, it is essential to determine how you will divide responsibilities and ownership. To determine this, you can ask the following questions:

• How will you and your partner pay for the down payment and closing costs?

• How will you allocate your monthly mortgage payment and other expenses?

• What will you do if one individual is unable to make a payment?

• Who is responsible for sending the monthly mortgage payment?

• Will taxes and insurance premiums be held in escrow?

• How will the costs of repairs and maintenance be divided?

• Do you wish to establish a buyout agreement?

• Will you have joint or individual tenancy?

How much should we save prior to buying a home?

Before buying a home, you should save enough to cover your down payment, closing costs, moving expenses, and other incidentals. The minimum required down payment varies from 3% to 20%, depending on the loan product you select. Typically, closing costs amount to between 2 and 7 percent of the buying price. Costs for moving vary greatly based on distance and level of service, from DIY with a rental truck to a crew of packers and movers. Additionally, you should set aside a few thousand dollars as a cushion in case of unforeseen expenses.

For instance, suppose you wish to buying a home for $428,700, the median price in the United States during the first quarter of 2022. If you made a 3% down payment ($12,861) and spent 2% of the purchase price ($8,574) on closing costs, you would need to save at least $21,435—plus moving expenses and incidentals. If you made a 20% down payment ($85,740) and your closing costs totaled 7% of the purchase price ($30,009), you would need $115,749 in savings, exclusive of moving expenses.


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