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Sharing a Home and a Mortgage with a Friend
There comes a time over the course of any renter’s stay in a rental unit when it seems that the payments are providing a great stream of income for a landlord but little for you. Indeed, as incomes begin to creep up and the ability to handle at least a portion of a mortgage becomes a possibility. More and more renters are beginning to feel this way and enlist a friend to make their home ownership dreams happen.
There is a time in life where particular income levels can outgrow renting but perhaps be too small to take on a full mortgage. As a way to either bridge that gap or land a home above a single person’s income level, friends are beginning to team up in greater numbers to operate as co-owners on a home. As with any real estate transaction, these deals require a bit of care and, more importantly, asking some tough questions of yourself and your prospective co-owner.
Why Do You Think Co-Ownership Is for You?
Everyone that ponders co-ownership needs to be sure about why it seems like a good idea. Problems can arise when you and your friend are not on the same page about the benefits you hope to see through co-ownership and that discord can harm the search for an actual home.
Are you looking for tax benefits on the new property? Are you looking to upgrade your surroundings by sharing the mortgage burden? Are you hoping to build equity and sell the home in five years? These types of motivations are common and the only way to be sure that you and your prospective co-owner are on the same page is to go ahead and ask them. It may seem silly, but this step has to come before ever going to a showing or looking at an open house as your target will change based on what you are trying to accomplish.
What Happens if You Get That Dream Job Offer?
Any plan needs contingencies and getting involved with a co-owner is no different. What happens if you get the job offer of a lifetime in a different state? Discussion needs to take place about the possible options that face both of you if one of you decides to leave town. There are a number of options available should that occur.
Of course, you can both go your separate ways and sell the house but sometimes this ruins your goal of building equity if that is what you set out to do. Another option is to buy out your friend and pursue someone else as a new co-owner. No matter what your decision, it should be made before ever getting involved in the transaction to ensure a seamless transition should the time come.
How Much Do I Trust You?
While it may seem crass to ask this in regards to how you feel about your prospective housemate, the fact of the matter remains that a significant portion of your financial future is tied up with this person. If you have doubts about whether your friend has the ability to make regular payments, that should send up a red flag and end the discussion there.
Often, the loans given in these types of situations make both parties entirely liable for the entirety of the loan. That means if your friend skips town without paying, your bank can hold you solely liable for the entire balance of the loan, not the half you planned on paying. Be sure of who you get involved with for co-ownership as it could save you financial headaches in the future.
Co-ownership can be a great way to solve the problem of wasting money on rent and wanting to build equity without the income level to do so. However, before ever traveling down that path, you need to ask you and your prospective housemate these questions to make sure that you are not getting in over your head. Stay careful and you will ultimately find the right living situation for you.
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We respond right away! -Colleen Lane, Realtor®
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