10 Mar Should I buy a house with my friend?
Are you wondering if you should buy a house with your friend? Buying a house can be a clever investment, but is buying with your friend a good idea? In terms of investment, the more you pay back on a mortgage, the more equity you will gain on the property which will organically grow over time. This especially applies if you invest money into a property. It can be unnerving saving independently, so the question often arises to whether it is a smart decision to invest with a friend.
It’s easier with two!
Anyone who has bought a house before, will understand the test of applying for a mortgage loan. When applying for a conventional home loan, the lender will need a minimum of 680 credit score and at least a 5% deposit. For some people, this can be quite daunting and infeasible. But, having two people signing the mortgage application can increase the odds of agreement.
If you do decide that you’d like to buy a house with your friend, the mortgage lender will base the approval on the combined income and the average of both your credit scores. This of course increases the financial opportunity for you both and will also ease the overall fee by splitting everything equally.
One bad credit report can reflect badly on you both
It may all sound well and good splitting everything equally, but it can also be tricky relying on someone else with such responsibility. Your friend may begin with making payments on time, but for whatever circumstances they may be late in paying. Job loss, demotion, or just struggling to afford the mortgage from their monthly income could mean they are unable to pay, which can then put your credit rating at risk.
Because both of your names are on the mortgage, you both are responsible for that commitment. If payments are late, then the bank will report you both to the credit agencies for non-payment, despite whose fault it is. But don’t stress, you do have a full 30 days after your payment due date before the lender can make an official report to the credit bureaus.
Monthly expenses halved
A big advantage of living with somebody else is being able to split the household bills. Paying for this alone, as well as the mortgage can be hard and could leave you with very little left over at the end of the month. Taking that pressure of, by sharing the cost can be a beneficial aspect.
Council tax, utility bills, telecom, TV licence and insurance are your typical household bills. And that isn’t even including food, travel costs, gym memberships, credit card payments or healthcare! With all that you will be thankful for that extra person.
Are you ready to test your friendship?
Things can quickly turn sour over the slightest disagreement. Whether it be over your bills or just simply pulling your weight with the cooking and cleaning! To avoid this, cover your back. Ask a legal representative to draw up a written agreement, and go into detail. Include instructions about the breakdown of expenses, how repairs are managed and how together, you will maintain the property.
Unlike renting, it’s not as simple as finding a new room-mate if things go bad. Removing someone from the mortgage can be hard. You either would have to sell the property or refinance the loan under just one name. Neither option is easy. Selling can take months, and approval is never a guarantee. Have an agreed-upon exit plan outlined in the written agreement to protect yourself.
Key points to take away
• If you’d like to buy a house with your friend then why not try renting first? There are options to rent month to month at some properties, so why not test it out first. See how you both split the cost, take on responsibilities and look after the place.
• Do your research. Just like a bank, check their credit reports. See how much they earn and if they have made previous payments on time.
• Hire a legal representative or solicitor to drawn up your written agreement. Cover all avenues and be detailed. Do your research and make sure you and your friend both have the income to cover the monthly investment.
If you need help and advice about finding a legal representative, we can help! We have a panel of solicitors we can highly recommend, including Gordons LLP or Brearley Law but if you’d rather us to put you in touch with someone then let us know, one of our friendly team can speak with a solicitor on your behalf and ask them to get in touch! Click here for a solicitor referral.