If you’ve thought about buying a house with a friend to save money, you’re not alone. Rocket Mortgage surveyed potential home buyers and found that nearly 60% of renters are open to co-buying a home with friends.
By sharing expenses and combining financial resources, people who buy together are able to enter the housing market in a faster time frame and reduce many of the costs associated with owning a home. If you’re struggling to break into the market, here’s why crowdsourcing may be the solution you’ve been looking for
How co-ownership reduces financial barriers to home ownership
If your main obstacle to owning a home is affordability, you’ll have more buying power when you combine your income with someone else’s. Saving tens of thousands of dollars for a down payment can be difficult on its own. Combining your income with someone else also allows you to split the down payment and potentially get a home sooner.
Owning a home comes with a number of financial responsibilities such as mortgage payments, property taxes, repairs, maintenance and insurance premiums. When you co-buy your home with a friend or family member, everyone can contribute to the monthly costs of the property as well as the household bills. This drastically lowers the cost of home ownership per person.
Hidden costs are easier to manage
Many first-time home buyers underestimate the cost of the ongoing and unexpected expenses that come with owning a home. Depending on your location, property taxes can cost thousands dollars every year. In some areas, property taxes increase significantly each year. Splitting expenses makes it easier to deal with big increases in property taxes and other bills that just seem to keep growing.
Rising insurance premiums are another hidden cost of home ownership, as well as maintenance and repairs. When the cost of materials goes up, so does the cost of small jobs like fixing up a porch or replacing some shingles on your roof. By themselves, unexpected repairs to fix plumbing or electrical problems can be devastating, but they become manageable when shared with another person.
Buying together can improve your housing options
While the main benefit of buying a home together is saving money, it can also improve the quality of housing you can afford. When you combine your income with that of another person, you are more likely to have access to a home in an area with good schools and better amenities. You won’t have to settle for a tiny house. Instead, a shared budget can give you access to homes with garages, large yards, home offices and updated features.
You’ll be building equity instead of paying rent
If you’re tired of spending money on rent, condominiums are a great path to home ownership. Every mortgage payment you make will contribute toward the equity in your home instead of financing your owner’s equity. Over time, as your home increases in value, it can increase the equity you have available.
There are practical advantages to cohabitation
Living alone has some advantages, but when you live with other people, you can share the cleaning and other household chores and get more time for yourself. Living with a good friend can make you feel more connected and less isolated, even if you’re not around all the time.
Friends who live together can help each other when needed, without having to find a stranger. For example, some friends make arrangements to help each other with babysitting, pick up each other’s kids from school, pick up deliveries, take care of pets, and more.
Common mistakes to avoid
There are many benefits to buying a home with a friend or family member, but there are also some challenges that can lead to costly mistakes. For example, don’t assume that everyone who wants to share a house has the same goals. Some people don’t even realize they have plans for the future that will collide with buying a home now.
It is important to create an agreement before trying to get approved for a mortgage. Everyone must agree on things like exit strategies, shared ownership percentages, financial contributions, and dispute resolution processes. Having everything written down provides a definitive source for disputes and reduces the possibility of disputes.
Buying together is a new path to home ownership
For buyers struggling with affordability, buying a house with a friend is a practical alternative to waiting and hoping housing costs will come down. While successful co-buying arrangements require planning and strong communication, it is sometimes the best way for people to own a home.
Photo by Tierra Mallorca: Unsplash
