December 2022

5 steps to buying a home with friends

As home prices have gone up, it's become more common for two or more friends to buy a house together. In fact, according to a survey by Zillow, 13% of successful buyers bought their home with a friend.Footnote1 While combining financial resources can make it easier to buy, there are also a number of issues to consider up front.

Start with a frank conversation.

Buying a home is a big financial commitment - if things go wrong, you could risk your friendship as well as your home. You and your potential co-buyer (or buyers) need to be clear about how much you can each contribute financially, your preferred living arrangements, and how you might deal with problems that arise.

You'll also want to decide if you'll be true co-owners or if one person will be the owner and mortgage-holder while the others will simply be tenants. It's crucial to define each person's role before you buy.

Be up-front about finances.

Each person's income, debt and spending habits will affect their ability to contribute to a down payment and pay their share of the ongoing costs. If one person has credit issues, it could be more difficult to qualify for a mortgage together. Be honest with each other, and be sure to get preapprovedFootnote2 for a mortgage before looking for a house, so you know how much you can afford together.

Keep in mind that if one of you can't or won't keep up their contribution to the mortgage, the others will need to make up the difference to avoid damaging everyone's credit.

Decide on the type of co-ownership.

There are several ways to title a property, with pros and cons to each. These are the basic options:

  • Sole ownership: One person has all rights and responsibilities. In this case, while friends may contribute to costs and live in the house, they would be tenants, not co-owners.
  • Joint tenancy: Each co-buyer owns an equal part of the property, and if one person dies, the other surviving co-owners receive the deceased's share. However, co-owners can sell their share without the permission of the other owners.
  • Tenancy in common: The co-buyers own unequal shares (usually based on how much each one invests). Each person can bequeath their share to whomever they choose, but all co-owners must agree if one wants to sell their share.

Spell out the details.

You'll also need to agree on certain fundamentals, such as preparing for 'what-ifs' and including them in your co-ownership agreement. Be sure to plan out things like:

  • How you'll split ongoing costs. Fifty-fifty? Based on income? What about unexpected expenses?
  • Who owns what. You'll acquire things over time. Who gets them if you don't stay together?
  • What happens if someone needs or wants to move. Couples break up. Employees get transferred. If you need your equity from the home (or, conversely, if you can't afford to buy out your ex-partner or assume the mortgage alone), there will be a plan in place.

Choose experienced professionals.

Traditionally, the home buying process has been geared toward individuals or married couples. Since there are different legal and financial issues for friends who are buying together, it's helpful to choose real estate and mortgage professionals who understand your particular needs.Footnote3

Once you've decided on a plan, it's a good idea for everyone involved to consult your lawyers and have them draw up a co-ownership agreement. Having your plan in writing gives you a clear framework for dealing with whatever may happen over time and helps ensure a successful co-owning experience.

A note from your lending specialist

I can help you review your financial situation and get preapprovedFootnote2 for a mortgage, so you and your co-buyers know up front what you can afford.

1 "Buying a House With a Friend: How to Know If It's Right For You,", March 30, 2022. Accessed September 2022.

2 Final loan approval is subject to satisfactory appraisal and title review and no change in borrower credit and financial condition. Preapproval is subject to terms and conditions and timely submission of required documentation; ask your Lending Specialist for details. Preapproval does not commit to the continued availability of the loan program. The interest rate shown in a preapproval is based on our current pricing and is not locked. You may choose to lock an interest rate after we receive the complete and executed purchase contract. Borrower must submit purchase contract within 90 days of preapproval. If the rate at time of lock is higher, or a rate lock expires prior to funding, or for adjustable-rate loan programs when the index value rises, we must determine your ability to repay the loan at the higher rate, which may lower the loan amount or invalidate the preapproval. Not available on all loan products. Not available on refinance loans.

3 "Buying a home together? Avoid these common co-buying mistakes." CoBuy blog, 19 Feb 2021

MAP5093224 | 11/2022

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