September 19, 2022

Buying a Home with Friends

Is it possible to buy a home with a friend or friends? The answer is yes. Is it a good idea? This question does not have a definite answer. Each case is very personal. In this article we will try to present most of the available options to deal with the situation when you are willing or have to buy a house with a friend. Wither it is just your friend, your partner, spouse or a group of friends you’ll have to deal with the document called Joint Tenancy so, here in this article we will also give you some important details on how to approach this document and what other paperwork you’ll have to deal with during the process of buying the property jointly with your friends or partners.

Is buying a home with friends legal?

Yes, it is absolutely legal. There are actually many ways to become a proud owner of a property and you don’t have to have full ownership. You might as well have interest or a share in a property. The number of friends willing to share this purchase is not limited by the legislation as long as all and each of them are able to pay the mortgage. So, yes you can:

  • Buy a house or a condo with a friend
  • Buy a house or a condo with several friends and the shares of all of you will be equal
  • Buy a house or a condo with several friends under the condition that one of you has a bigger share than the others or you all have different sizes of shares. Make sure you sign a contract where you are all called Tenants in Common.
  • Rent a house or an apartment with pretty much the same options
  • SubRent a room in a rented apartment, condo or a house. In this case make sure the subrent is clearly identified in the contract.

If you need more legal information on any of these options, do not hesitate to contact our team of professional estate agents at MyReProperty.  

Pros and cons of buying a house with friends

There are some very obvious as well as not so obvious advantages of purchasing a property with friends. Needless to say, the disadvantages also exist.

  • One of the biggest appealing factors of buying a house jointly, especially if this is your first house, is that you will be able to afford the property ownership and start climbing your property ladder sooner than you could have without this option. Owning a share of a house is obviously more affordable than buying a house, the chances of getting a mortgage loan from the bank are high and you can start your bank history easier and safer with a very low risk of spoiling it by getting a heavy mortgage loan for the house of your own.
  • In most cases of joint ownership the joint owners are students or young people and it can be taught to save up enough for the first deposit. Especially with the hot property market gettin even hotter every season these days. Again, summing up your savings can help to make the first deposit a more affordable thing, leaving you some funds for everyday needs and entertainment.
  • Another important financial advantage of buying a house with friends is that you can split related costs such as real estate agent, evaluation, the solicitor and other things of such matter. You will have to get deeper in the financial subject if you want to buy a house with friends for there are many details to be discussed and decisions to be made on the issue.
  • Joint ownership also suggests splitting the costs of maintenance or unexpected repairs which also makes it financially easier to be able to afford the ownership of the property.
  • There are, of course, some downsides of buying a house with friends and one of the biggest is that your personal capital gains from owning the property are lower than they could have been if you'd owned a house alone. All the gains are splitted among all the owners just like the costs are so eventually you get less. For example if your house has grown up to $120 thousand dollars and there are three of you own the equal shares, you’ve only gained $40 thousand. 
  • Shared costs as a positive side of buying a home with friends brings up a corresponding side of shared mortgage responsibilities. If one of your friends can’t pay a mortgage by any reason, you’ll still have to share this additional cost and pay it. Unfortunately the vast majority of the reasons it may happen are out of your control so that is a very high risk.
  • In case you need to apply for the First Home Grant to be able to afford your first property, you will be offered much lower money if you are not the only owner of the house. 

How does mortgage with friends actually works

So, how to make it work and not let it spoil your bank history? The most important thing you need to do is prepare a good bank application. The bank will be more willing to give you a good mortgage offer if all of the parties involved have a stable income and good savings in a bank. ideally  in the same bank you apply for a mortgage. Not every bank will be willing to give you a good offer, most of the banks will want to make sure that all of the Tenants in Common are able to pay the whole mortgage in case one or some of them can’t. Some banks don’t have such restrictions, so keep looking. You need to find a bank that can offer a

Common Tenancy, where every party is only responsible for the share they own.  And always advise your estate agent on the concerns you might have. Also, be prepared to discuss an Exit Plan. In case one of the partners decides to leave the project or passes away, what will you do with the share? Will you be willing to sell it to any one or you would want to have the right of first offer? 

There are other things to be clarified before you apply to the bank. 

  • Make sure you all agree on the criteria of the house you are buying: the size, the type, the location, the number of rooms and amenities. 
  • How are decisions going to be made if one of you thinks the house needs some maintenance but the others don’t. 
  • Make amendments to your life insurance to be able to afford your house in case of some unexpected health issues.
  • Discuss the issue of potential flatmates if one of you wants to invite a partner or move out and have a relative to live in their part of a house.

The mentioned above reasons are good issues to think about before you decide to commit to a Joint Tenancy. But it is still a very good option to consider if you can’t afford buying a house on your own.