A guide to buying a house with a friend

The traditional narrative of homeownership is that of a married couple buying a home in which to grow a family. However, earlier this year Realtor.com surveyed more than 1,000 adults in the U.S. about home buying and found that almost one in three Americans have bought a primary home with someone other than their spouse. 

Prospective home buyers looking to combine forces with someone else might buy a home with a family member, with a non-married romantic partner, or - perhaps most surprisingly - with a friend. In fact, 10 percent of the Realtor.com respondents said that they would consider going in on a home with a buddy.

Buying a house with your friend might seem like tricky territory, but it’s actually very doable, as long as everyone involved has the same goals for property ownership and understands their responsibilities as borrowers, if they're taking out a mortgage.

Can you buy a house with a friend?

While it is still relatively rare, buying a house with a friend is absolutely possible. In fact, you can buy a home with multiple friends. Though technically there is no limit on the number of owners that a house can have, most lenders will not loan to more than four co-borrowers.

If you are hoping to buy a home with a group larger than four, it’s not impossible, but you will have to do more work to find a mortgage lender willing to work with you.

But should you buy a home with a friend?

Whether or not you should buy a home with a friend depends on you and your friend’s goals. If you’re thinking about buying a home with a friend, here are some pros and cons to consider. 

Pros of buying a house with a friend

• You and your friend can increase your purchasing power. If you’re taking out a joint mortgage, lenders will typically look at you and your friend’s combined income. It'll be easier to cover mortgage payments as well as closing costs.
• You can split the costs associated with the home. Don’t forget that the costs of homeownership include property tax, insurance, and more.
• You might get a mortgage more easily. Two or more friends can likely afford a larger down payment together than they could on their own. 
• You can deepen your friendship by taking on the responsibility of homeownership together.

→ Learn what the ideal credit score is to buy a home

Cons of buying a house with a friend

• Everyone’s credit score matters. If one friend has a bad credit score, that could mean that everyone’s monthly payment is higher. Your lender will typically base your rate on the lower score.
• Similarly, everyone’s credit score will be affected. If one person falls behind on mortgage payments, everyone’s credit score suffers.
• Homeownership can be a lot of stress to put on a relationship if it’s not already trusting and strong. 
• Friends don’t have the same property protections under the law that married people have. This can be especially problematic in instances where one person wants to move out of the home or to move on from ownership. Taking someone’s name off of a mortgage requires buying them out and refinancing the mortgage. 

So while buying a home with a friend can be a great way to find a path into homeownership, it also can lead to some unique complications. While the main benefit is being able to afford a larger house or qualify for a mortgage, there are also drawbacks to joint ownership and it may cause more of a headache, which is why it may not be the ideal if you're buying a house for the first time. If you’re committed though, there are certainly ways to address these complications and make sure purchasing a home with your bestie goes smoothly.

How do you buy a house with a friend?

Just like in any other situation - whether you’re buying with a spouse or partner, with a family member, or by yourself - the only thing necessary for buying a home with a friend is making sure everyone involved can afford the mortgage.

The most important thing to keep in mind about buying a house with a friend is that it will require significant financial transparency in a relationship that’s not typically associated with that kind of disclosure. There aren’t many other situations in which you and your friend will both know each others’ credit scores. You should make sure you’re comfortable sharing this kind of information with your friend before you proceed with a mortgage application.

Beyond that, there are some important details you should iron out before you go in on a house together. Whether the purchase is an investment property that you plan to renovate and rent out or a home that you’ll share, make sure you sit down with your friend or friends and discuss the following questions. 

Things to decide before buying a house with a friend:

1. How will you split the down payment? What about the monthly mortgage payment?
2. Whose name will be on the mortgage?
3. How will the title be held? 
4. Will the ownership stake be equally split? 
5. How will decisions be made about repairs and improvements?
6. How can one of you exit the partnership?
7. What happens if one of you passes away?

How co-ownership works when you buy with a friend 

The two main types of property ownership are joint tenancy and tenancy in common.

Joint tenancy gives each homeowner equal property shares. This is a ownership structure that is typical for married couples. With this co-ownership arrangement, if one of the owners dies, their shares pass to the other joint owner. 

Tenancy in common allows you to divide property shares equally or unequally and leave each share to an individual’s heirs rather than passing to the remaining co-owner. When two (or more) people hold a title, each tenant in common own a different percentage of the house depending on how much they’ve contributed to the equity in the home. When someone dies, their ownership share of the house passes onto their designated heirs. 

→ Related: What happens to a mortgage when someone dies?

While opting to be tenants in common might make more sense for friends buying a house together, it could introduce complications: What if one friend dies and then their children suddenly own a portion of the house? That means the remaining friend will need to reach an agreement with the children or the house might need to be sold, with the proceeds split among the remaining friend and the children.

The third option is one person holding the title alone. That means one person owns the home and the other is functionally paying rent. That’s not ideal for most romantic or married couples, but it can work for friends or in situations where one person is saddled with student debt or has a low credit score that results in a higher mortgage rate or lowers the final home loan amount approved by the bank.

Divide responsibilities

It’s a lot of work to own a home, especially an investment property. Just like you would with a partner, write down how you will split responsibilities. How will you handle the financial responsibilities, and who will be in charge of utilities, repairs, and other costs? Put everything in writing so you don’t start bickering over who owes what. It may be smart to start a joint bank account that’s only for home expenses, too.

Decide who lives where

Maybe you bought a place for you and a friend to live. Maybe you bought a place with three other cousins, but only one of you lives there and the rest of you would like to rent out the house for some extra income. This is where things get tricky.

It’s fine when one of your group is living in the house and wants to stay there, but if they decide they want to move to a new place and need some money to do it, they might want to get out of the mortgage. Can just three of you handle the mortgage yourselves? Could you do it by yourself?

Homeownership comes with some heavy burdens, especially if you’re doing it on your own. Should a partner one day try to back out, you’ll have to go through a refinancing process to get the title and mortgage all in your name, and be ready to take on the financial responsibilities that come with it.

Plan for the future

That segues nicely into the final, most important point. What’s the end game? Are you going to live in the home together forever? Probably not.

You should discuss what you’ll do if one of you gets a new opportunity and moves to a different state or city, meets someone special, or comes into some more money. How will you handle unexpected situations?

Moreover, do you have a goal with this house? Do you want to sell it in a few years for the profit and keep buying homes together? Do you want to eventually buy another house and rent the original? It’s a lot easier to own a home with someone if you’re on the same page about how you’d like to manage it.

If you fail to communicate well, you’ll wind up back at a common theme: Regretting entering such a huge financial endeavor with somebody, which might cost you a relationship.

→ Learn how soon you can sell a house after buying it

Put everything in writing

Regardless of what you and your friend decide about ownership structure and all of the other considerations on the above list, you should consider putting whatever agreements you come to about all of these things in writing before you even begin looking for a home together. This way you can ensure that you’re all on the same page legally speaking, and protect yourselves (and each other) financially in case anything goes wrong. 

You should also have a real estate lawyer look at this agreement to make sure that you’re not missing anything, and that it’s legally binding. An attorney, such as a family-law attorney, can also make sure that this agreement, which is sometimes called a cohabitation agreement, is in accordance with your local laws and any give you legal advice about any other specific considerations. This kind of agreement can cover all kinds of other things not listed above - for example, what happens to property that you acquire while living together, or how you should settle disputes that come up in the future.

Should you and your friend form an LLC to buy a home?

Some people who are buying houses with friends, especially those who are buying them as investment properties, might consider forming an LLC, which can make sorting out shares and distributing investments easier, though it introduces new complications that many home buyers, friends or not, will likely want to avoid.