Becoming a homeowner is exciting and invigorating. The prospect of having a home to call your own—with total creative freedom—is enough to make anyone optimistic about taking the leap into homeownership. Many people today are choosing to take that leap with their friends. This comes to form in many shapes and sizes; some people move in together as single friends, while other friends are combining their households to have two families and/or partnerships under one roof. Some couples are empty nesters and prefer not to live alone.
According to this survey, the majority of Millenials are willing to take out a mortgage with family or friends if it offers them a foothold on the property ladder. While this way of home buying certainly isn’t traditional, more people than ever are going for it. With the right steps, purchasing a home with friends can be a fruitful, happy, and successful venture. Here’s what you need to know:
Discuss the Future
No matter who you are, your plans and trajectory in life change. Before you move in together, it’s important that everyone have a transparent and candid conversation about what their future looks like. Unlike an apartment lease, you’re opting for a commitment that will last for years to come. The average homeowner remains in their property for roughly seven years; even higher in certain areas. Naturally, you have to consider what each of your plans to do financially should you decide to split up.
If you’re in a relationship, you should also discuss the prospect of having children in the home. Pregnancy can change the dynamic of a household, and it’s something everyone should talk about if any of the household members plan to have children in the future. “We talked about our family plans for the future,” said Deborah Tepley, who agreed to purchase a home with her husband and another couple. “TJ and Bethany wanted to have kids, and we’re kind of on the cusp of that. So we started hashing out what this would actually look like, and we started intentionally setting aside money.
Having an exit strategy is a safeguard against circumstances where one of more people want to leave the house before the others. After all, you cannot guarantee that everyone will want to move on (should the day come) at the same time. An exit strategy will outline buyout options, and how the finances will be managed moving forward.
One of the biggest benefits of teaming up with friends on a home purchase is sharing the financial burdens. The cost of living in many cities has gone up, and the vast majority of Americans simply can’t afford to purchase a home right out of college. With combined incomes, you’re able to afford a home, save money in the long-run, and even score better homes with better amenities. And finally, you’re able to get a home much sooner than you would otherwise.
“It would’ve taken us longer to save up, and we would have had to rent or get roommates in order to afford it,” says Tepley. “And thinking about repairs—we already had to repair the roof, and suddenly a $3,000 bill becomes a $1,500 bill. It makes it a lot less intimidating burden when you can share the house expenses.”
With that in mind, discussing finances is a huge part of the financial equation. Everyone should be upfront and honest about their income situation, credit, and budget. Each individual should be gainfully employed, with savings in the event of an emergency. Remember: the house is under everyone’s names, and one missed payment has a negative impact on the group as a whole. It’s best to be comfortable enough to look at each other’s credit reports and discuss finances before you meet with a lender.
Talk Lifestyle & Routines
Everyone has a different lifestyle, different habits, and different daily routines. Sit down together and map out what a typical day or typical week looks like for one another. This will help you avoid bumps along the road. For example, perhaps you hate the smell of smoke and one of your friends is a smoker. Discuss smoking areas around the house to avoid disagreements in the future. There will likely be less bathrooms than there are people; talk about work routines and ensure everyone gets enough time to get ready for the day or evening.
Because you never know how an arrangement will go until you’re in it, you might want to consider living together in a spacious apartment before you take a bigger step towards owning a home. Another way to learn more about how a person handles different situations is to go on a trip together. A vacation or long-term travel trip will offer deeper insight into how you handle the ups and downs of travel, the level of organization, etc.
Divvy the Bills
Owning a house comes with several expenses. From maintenance costs to utilities to Homeowners Association fees, you can expect several bills to come in the mail. Even though you’re sharing the costs, you should have a plan in place for who’s responsible for paying which bills. This keeps the household responsibilities fair and equal. On the same note, you should also discuss who’s responsible for certain “chores.” Although it’s fair to assume everyone should clean up after themselves, having a rotating schedule for thorough cleanings helps keep your home in tip-top shape.
Keep Paper Records
All of the discussions you have should be more than just a verbal commitment. When you’re moving in with your friends, you should make it a priority to get everything in writing. Sure, the home loan and other paperwork have signatures, but you also need to have contracts between one another. This might seem arbitrary when you trust your friends, but it’s best for everyone in the long run. Approach it as a necessary part of the process, and not because you don’t trust one another. A lawyer can help facilitate this process. This way, each detail is ironed out and everyone will feel much more comfortable with the arrangement.