Buying A House With A Friend: How To Get Started and the Pros & Cons
Andi • February 28, 2023
By: HomeFinder Staff | June 1, 2022
With sky-high real estate prices coupled with younger generations settling down with romantic partners and starting traditional families later than ever — if they even do at all ! — it’s no wonder that buying an investment property with a friend is a trend on the rise.
Citing data from Attom, the Wall Street Journal reports that the number of co-home-buyers with different last names increased by a whopping 771% between 2014 and 2021. “We split everything three ways, so it’s cheaper to live,” Amandan Scheider told NBC News about how living expenses are split up in the home she shares with her friends Kathy Keel and Stephanie Vandergrift. “If you have good friends, you have a lot in common and can pretty much hang out whenever… it’s like a permanent sleepover.”
But what does it take to actually go through the co-buying process and get to permanent sleepover status? What does co-home ownership even mean and look like? Can you get a mortgage with friends?
We’re here to answer these questions and more about how to buy a house with a friend.
Types of Ownership: Tenancy In Common vs. Joint Tenancy
In general, there are two main ways to go about buying a house with a friend: tenancy in common or joint tenancy.
Tenancy In Common
Let’s start with tenancy in common. This means that everyone with a house title has some level of ownership and, therefore, interest in the property. With the tenancy in common approach, the ownership can be divided up however you’d like. One person could own 50% of it while two people split the other 50% in half, each owning 25%.
Even with sizable differences in the interest in a property, it’s still co-owned by all of the people on the title. In this arrangement, anyone can sell or transfer their share of the property to another person at any time without co-owner approval. Naturally, this leaves owners with flexible options but also leaves major lifestyle factors outside of your control. If you co-owners decide to sell or if they pass away and their ownership transfers to their heirs, you’ll have entirely new co-owners in the mix. Just like roommates, changes can go well or they can take a turn for the worst.
Joint Tenancy
An alternative to tenancy in common is joint tenancy, which is a little more structured than tenancy in common. Under joint tenancy, all co-owners have to hold an equal share of interest in the property. With a joint tenancy arrangement, if a co-owner passes away, their share automatically passes to the surviving co-owner or co-owners.
One of the most notable differences is that, with joint tenancy, no one can sell their portion of the property without the consent of all of their co-owners. While this means a lot more agreement among co-owners, it dramatically reduces the variability and instability that can come with tenancy in common.
Finally, a joint tenancy co-owner can still transfer their interest in the property to another person, but when this happens the arrangement is automatically converted to a tenancy in common.
How joint mortgages work
Unless you and your friends are planning on paying in cash, you’re going to have to get a joint mortgage to buy a home together. Chances are this has brought up a number of questions for you. Whose credit score is used on a joint mortgage? And how many borrowers can be on a mortgage?
What is a joint mortgage?
A joint mortgage is a mortgage that multiple people get together. Joint mortgages are actually super common — this is the main route that married couples take. It’s important to note, though, that a mortgage is different from owning property together. Mortgages only cover who is responsible for loan payments and they’re not tied to the title of a property which outlines who the owner is. Every lender is different, but most limit the number of people on one mortgage to four parties.
Whose credit score is used on a joint mortgage?
When applying for a joint mortgage, all of the co-borrowers will submit everything from proof of income to credit scores, asset reserves, employment history, and more — whatever the lender needs to determine your collective eligibility for the loan.
The most important thing to note about joint mortgages, though, is that you’re likely to all be considered individually responsible for the full amount of the loan. This means that if one of your co-owners can’t or doesn’t pay their part, you’re probably going to be on the hook for it. It’s a big decision to make that requires a lot of trust and open conversations.
The pros and cons of buying an investment property with a friend
The specific pros and cons of any potential co-buying situation comes down to the individual people involved and their relationships. But in general, there are a few common upsides to buying an investment property or a home with a friend:
- You have a better chance of getting approved for a mortgage. It can be super tough to not just qualify for a mortgage solo these days, but saving enough for a decent down payment can be a challenge, too. When you’re co-buying, you have more than just your resources at your disposal.
- You can likely get into the housing market sooner. Much like getting approved for a mortgage, combining the resources of multiple people can get you into a position to buy faster than you could on your own. This means that you can convert the money you were paying in rent into an asset and, if you go the investment property route, you can start generating passive income.
As with all things, there are downsides to buying a house with a friend, too:
- You’re giving up control. When you co-buy a house with a friend, you have to be prepared to do many things together and consider the other person when you make decisions. If you and your friends are super aligned, this might not be much of an issue. But if you have less alignment than formal life partners do, the number of issues that crop up (think costly repairs) could mean a headache if you aren’t seeing eye to eye.
- It’s harder to qualify for another loan. When applying for a loan, one of the central elements that banks consider is your debt-to-income ratio or DTI. A low DTI is ideal, but when you already have a mortgage, your debt-to-income ratio increases because lenders will tend to view you as technically responsible for the full balance of the loan even if you’re splitting it with a friend.
If this sounds daunting, don’t worry! There’s certainly a lot to consider, but when it comes down to it, the only decision you have to make is what’s best and right for you.
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Step 1 Many homeowners start the selling process by looking at sites such as Realtor.com, Zillow, or Redfin to see what similar properties have recently sold for in their neighborhood to determine the current value of their home. That’s fine and understandable, but keep in mind: The sites aren’t 100% accurate as listings that were never listed in the NWMLS, or For Sale By Owners, will be missing. The information on the online sites is often out of date or not accurate as NWMLS. Therefore, a property might show that it’s still Active on Zillow, even though it sold 9 months prior. When professional appraisers conduct an appraisal, they only take into account homes that have sold in a particular neighborhood within the last 90 days. It’s not possible to sort the data by date on the online sites so it’s difficult to only look for properties that have sold within the last 90 days. Therefore, Step 1 to buying a home should be to interview REALTORS ® to represent you and ask them to provide you with a CMA (Comparable Market Analysis). Find a Realtor® How do you find a really good REALTOR®? Hopefully, you’ll contact us at 360-734-6479 or andi@andidyer.com so we can see if we would be a good fit. Remember, not all REALTORS® are right for all people. It would be best if you found someone who is not only great at his or her job, but someone you like and trust as you’re putting a big piece of your financial future in their hands. Ask friends and family for referrals. Contact those Realtors® and set up initial phone screenings with them. Notice how quickly each REALTOR® responds to your initial phone call or email. The REALTOR® should get back to you within 24 hours; if not, that’s a bad sign. This business moves fast, and deals can be lost if your REALTOR® doesn’t respond quickly on your behalf to showing requests, offers, inspection negotiations, etc. Initial Phone Screening During the initial phone screening, find out if the REALTOR® knows your neighborhood and if they’ve ever helped a client buy or sell property in your neighborhood. Ask about their experience. If your gut reaction says this person might be a good fit, ask them to do a CMA on your home and set up a time to meet with them in person. Be prepared for the REALTOR® to ask questions about your home, how much you owe on your mortgage and if any repairs are needed as they need this information to do an accurate CMA. Meet In Person and Review the CMA When you meet with the REALTOR® in person, ask them our Interview questions for hiring a REALTOR (see the next article we send). You will go over the CMA (Comparative Market Analysis) together and evaluate your competition. Ask them not only what they think your home is worth, but what the average days on market (i.e. the number of days from when your home goes on the market until you have an accepted contract) are in your area. If the REALTOR® doesn’t know this, move on. Ask them what they charge, how much the closing costs will be, and what approximately you’ll net if you sell your home for X price. Most importantly, be honest with each REALTOR®. If you need to sell your home for a certain amount of money or in a certain time frame, tell them. Only when REALTORS® have a complete picture can they come up with the best strategy to fit your situation. Lastly, trust your gut. Sign the paperwork Once you’ve picked a REALTOR®, expect to sign a Listing Agreement authorizing that REALTOR® to represent you. That starts the ball rolling to get your home on the market. Questions? Contact us at andi@andidyer(dot)com or 360-734-6479.
STEP 3 THE ESCROW PROCESS
Step 4 What I Do For You Not all real estate practitioners are REALTOR®. The term REALTOR® is a registered trademark that identifies a real estate professional who is a member of the NATIONAL ASSOCIATION of REALTOR® and subscribes to its strict Code of Ethics. When looking at all the factors that an Agent influences, it’s easy to see how important it is to choose the right one for you. Navigate a complicated process Buying or selling a home usually requires disclosure forms, reports, mortgage documents, insurance policies, deeds, and multipage settlement statements. A knowledgeable expert will help you prepare the best deal and avoid delays or costly mistakes. Information and opinions REALTORS® can provide objective information on utilities, zoning, schools, and more. They’ll also be able to provide objective information about each property. A professional will be able to help you answer these two important questions: Will the property provide the environment I want for a home or investment? Second, will the property most likely have a good resale value when I am ready to sell? Negotiating skills There are many negotiating factors, including but not limited to price, financing, terms, date of possession, and including or exclusion of repairs, furnishings, or equipment. In addition, the purchase agreement should provide a period of time for you to complete appropriate inspections, and investigations of the property before you are bound to complete the purchase. Your Agent can advise you as to which investigations and inspections are recommended or required. Property marketing power Real estate doesn’t sell due to advertising alone. In fact, a large share of real estate sales comes as the result of a practitioner’s contacts through previous clients, referrals, friends, and family. When a property is marketed with the help of a REALTOR®, you do not have to allow strangers into your home. Your REALTOR® will generally prescreen and accompany qualified prospects through your property. Someone who speaks the language If you don’t know a CMA from a PUD, you can understand why it’s important to work with a professional who is immersed in the industry and knows the real estate language. Experience Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. Even if you have done it before, laws and regulations change. REALTORS®, on the other hand, handles hundreds of estate transactions over the course of their career. Having an expert on your side is critical. Objective voice A home often symbolizes the future, rest, and security – it’s not just four walls and a roof. Because of this, home buying and selling can be an emotional undertaking. And for most people, a home is the largest purchase they’ll ever make. Having a concerned, but objective, third party helps you stay focused on both the emotional and financial issues most important to you. Questions? Contact us at andi@andidyer(dot)com or 360-734-6479.
Step 6 Signing Electronically Authentisign is a secure, online, document signing service that enables multiple parties to participate and sign real estate documents electronically. Electronic signatures have been approved for use since June 30, 2000, when Congress enacted the Electronic Signatures in Global and National Commerce Act. In an electronic signing, the action of you approving the documents is your signature. Instead of actually signing your name, you are approving the documents by clicking on signature or initial blocks. When you click on each block, the document will replace the block with your name or initials. The entire signing process is tracked, including the IP (internet protocol) address of your computer and the date and time you signed. This electronic process is convenient, efficient, and reduces the amount of time and paper used in the transaction. Respond to Invitation You will receive an invitation email with a link to access the signing transaction. Click the blue icon (shown below) to open the Authentisign electronic signature service.
Step 8 You see a home on Zillow or the like (we’ll call them portals from here on out) and inquire about its availability with us…and it’s not for sale. You’re looking to sell your home and you LOVE the Zestimate (I don’t need to talk to anyone to find out how much my home is worth; squeeee! And even better my home magically increased in value by $50K in the last two weeks according to Zillow; double squeeee!), yet the number is completely wrong when you talk to a REALTOR®? Why? Let’s start with the availability of homes part. The dirty secret about online real estate is that it’s built upon you being a leader. The online real estate world is inaccurate and untrustworthy. Portals don’t care about their data being accurate; they are an advertising website, not a real estate website so there’s no incentive for them to make sure that a home that sold six months ago is changed from active to sold on their website. They just care about getting your contact information, they sell advertising. Now that you know that the baseline of portals is garbage, let’s move on to estimates of home value. First of all, Zillow itself calls it a “Zestimate,” as in estimate. Zillow has a helpful chart which can be seen below showing that in the Seattle area the Zestimates are off by 9.8% on average. That means on a $500,000 home the Zestimate could say it’s worth either $450,000 or $550,000. That’s a $100K swing in price. Instead, Zillow says it’s a starting point for a pricing discussion. If it’s not even close to accurate, why are you taking these estimates as gospel? Wouldn’t it be called a “Zaccurate” if it was accurate? So why they aren’t accurate and what are these Zestimates based on? In Whatcom County, most of their data come from public data derived from the county, city, and state. The problem with this data is that it is out of date, to begin with. Anyone who has lived in Whatcom County for any length of time knows that the data is often inaccurate and this, in part, is what Zestimates are based on. The portals do not have access to sold home prices – en masse – which adds another layer of inaccuracy to the mess. The portals then apply an algorithm – a computer program – to these disparate incorrect pieces of data to derive an estimate of value. How can an accurate price be determined for a home when the data it is based on is out of date and incorrect? It can’t. So how should the value of a home be determined if you want it to be accurate? Sold home data – hard dollars spent – in a recent time period on homes that compare to each other is the most important way to determine the current market value of your home. Appraisers only use comps that have sold within the last three months which have a similar number of bedrooms, baths, square footage, and features, and are located within a 1-mile radius of the subject property. This is the reason why the beautiful new construction 3-bedroom single-family home that sold a year ago on your street doesn’t help the value of your 100-year-old 2-bedroom four-flat condo. Only real estate professionals and appraisers have access to this sold data; portals do not. The condition of your home is a factor. All things being equal, an updated home will be of more value than an identical home in the bedroom, bath, and square footage count no matter how much you love your “charming!” 50-year-old kitchen and asbestos-filled basement. Whether a neighborhood is appreciating or depreciating in value will affect the price of your home. Often a Seller’s perceived value of their home and the actual market price are very different numbers. You might be willing to overlook that your home has no AC and that the third bedroom is the size of a storage closet because you think the home has a ton of character which makes it worth the same as a home with Central AC and three large bedrooms, but these issues affect the price whether a Seller wants to admit it or not. This is why determining the fair market value of a home is a mixture of art and NWMLS data. My job as a REALTOR® is to help you determine where the actual market price of your home is based on the accurate information we have at my disposal, not the perceived price based on your emotions. So, in lieu of talking to us or any other REALTORS®, where can you go for accurate information? We will send you a link, to my system that is accurate, and an app HomeSpotter which it is integrated with. See a house on Zillow, Trulia, etc. that you like? Look it up on my App or NWMLS to be sure it’s actually available. Our sites are updated constantly. Zillow’s website sometimes has information on it that is 6 months old. In a fast-moving market, this could make or break your buying experience – specifically how much time you waste online. You’ll need to find every home in your general area and neighborhood which matches your home’s bedroom, bath, square footage, parking, etc. which has sold in the last three months since that is the time frame appraisers use. Then you need to go inside of them (or find recent photos of the interior) to make sure they match your home in terms of quality, condition, and finishes to determine a somewhat accurate value. Or you can pay for an appraisal every year until you’re ready to sell. Or we can generate an NWMLS report of sold homes in your neighborhood for you whenever you’d like, which is free. One tip we do recommend for Sellers is to claim your home on Zillow so you can make the data as accurate as possible. The bottom line for these and other websites is this: They are nothing, but advertising sites meant to monetize your eyeballs. Next time you log on to a portal such as Zillow and Trulia, look for an ad for a bank, or three-plus Agents (who pay to make it look like it is their listing which it isn’t), or a mortgage person or any of the myriad of advertising partners these companies have. Every time you look up a home as a Buyer or try to ascertain the value of a home as a Seller you’re selling an ad for these people and companies to the tune of multiple millions of dollars every year. They aren’t in the business of accuracy, only your eyes on an ad. Want accuracy? Want to know the market value of your home? Tired of wasting your time online? Give us a shout. Questions? Contact us at andi@andidyer(dot)com or 360-734-6479.
Step 12 You’ve picked a REALTOR® (us!). Yeah! Now what? Now we need to get your home ready for the market. This involves: Change the privacy settings on all your social media pages so only friends can see your posts We don’t want potential Buyers Googling you learning that you just got a big promotion at work, are moving across the country or are buying a new house because you’re having a baby. All of these items can hurt my negotiation position, therefore, it’s imperative you change your security settings to make your posts and photos private to strangers. And while you can mention on your social media page that you’re selling your home, don’t say why. Top 10 List Write a top ten list of reasons you love living in your home. We don’t want these reasons to be things the Buyers can easily see for themselves such as your gorgeous kitchen. Rather, we want them to be intangibles that only you know such as the beautiful sunsets visible through your living room windows, that you have great neighbors, the Farmers Market down the street every Tuesday, see the next page for an example of a Top 10 List. We then use this list in our marketing of your home. The Top 10 Reasons You’ll Love Living Here 1. Location, location, location! Only 3 blocks to the shops and restaurants of Sehome Neighborhood. Plus, everyday conveniences like Haggen’s, Starbucks, Blue Fin Sushi, Walgreens and a gas station are just steps away. 2. Work downtown? Drive there in 5 minutes, walk there in 20 minutes. Take an Uber to enjoy the night for $8. 3. Want to take the scenic way Western Washington University? The trail is literally off the side yard and walk there in twenty minutes. Or take the off-leash dog trails to the tower for a scenic overview of Bellingham, the Bay & Mt. Baker. You will never get bored with the variety of trails in this 175-acre oasis. 4. Have a dog? Zip out back to the Arboretum trails, or it’s a quick drive to the Lake Padden Dog Park and off-leash trails, or Fairhaven Dog Park. 5. 2 ½ miles to Fairhaven , walking distance to Sehome High School. 6. FANTASIC alpenglow sunsets behind Mt. Baker. Watch the moon & stars from the warmth of your living room. 7. Enjoy wildlife? We have squirrels, deer, racoons and even Barred owls in the summer. 8. The privacy in the backyard makes coming homing home at the end of the day to our sanctuary absolutely restorative. Sunbathing in the afternoons, drinking coffee in the mornings and watching the hummingbirds, or having a movie night party on the back deck, we get 8 months of living out here. 9. We don’t have green thumbs and love the low maintenance yards. 10. We wanted a convenient location in town, but to feel like we were in the middle of nature. We’ve Loved Living Here and Know You Will Too Questions? Contact us at andi@andidyer(dot)com or 360-734-6479.
STEP 13 Once all of the paperwork is complete, we’ll walk through your home room by room with you to create a comprehensive list of items that need to be decluttered and furniture that needs to be moved or put in storage. Together we’ll determine whether we need to bring in a professional stager to stage either certain rooms or the entire property. Unless the property is vacant, we usually don’t need a stager. If your home is vacant and we determine a stager is right for your situation, we’ll provide several companies for you to interview. Once you’ve picked a stager, you would pay the staging company directly for their services. See our article “81+ Staging Tips that help Buyers Fall In Love.” Remember, we’ll create a personalized list just for your home. Once the staging/decluttering is done, let us know so we can schedule an appointment with our top-notch professional photographer for your home. Home Staging That Delivered Big Results Great design helped to bring about quicker sales that surged high above list prices. Home staging can show a home in its best light and attract more home buyers—and possibly bidding wars. Several of last month’s “Best of the Best” home staging winners showed what a difference staging can make. Each month, the Home Staging Resource recognizes top designs from its members. Check out some of the designs featured recently on the Styled, Staged & Sold blog as well as more of October’s honorees below. Budget-Friendly Updates Addie Ashworth, a sales associate at Coldwell Banker Realty in Columbus, Ohio, and owner of Ashworth Staging + Design took on a listing that her client inherited from his father. “Nothing had been updated in years, and everything was original,” Ashworth says. “The seller did not want to spend a lot of money on updates.” Ashworth suggested low-cost fixes with a big impact, such as removing the dated carpet to expose the original hardwood floors underneath. The entire house was painted in “Agreeable Grey” by Sherwin-Williams. Some of the kitchen cabinet doors were starting to fall off, so Ashworth recommended removing them and adding baskets. Everything in the kitchen was painted white, and the aging linoleum floor was swapped out for luxury vinyl planks. Ashworth also brought in modern furnishings, staging the home with a midcentury vibe to compliment the 1958 ranch-style home. The property had more than 270 showings and 43 offers—all above list price. The seller accepted a cash offer with no contingencies for $165,000 over the asking price. The home closed in five days. Before:
STEP 15 REPAIR TIME If together we have gone through the house and identified a list of items that need to be fixed. If your dishwasher hasn’t been working for years or your air conditioning unit has been making an unusually loud noise, we need to have those items repaired before your home goes on the market. It’s better to get items fixed now before they come up in an inspection report and potentially scare off a Buyer later. We have access to affordable repair people, electricians, handymen, etc. In general, we always recommend: Touching up the paint in your home. Installing new caulk around every shower and tub. Hiring a professional HVAC company to service and clean both your furnace and AC, if applicable. Hiring a professional to clean your carpets. Making sure all light bulbs are working and that every light fixture contains the highest wattage light bulbs it can bear. Having chimneys professionally swept. Changing outdated cabinet hardware in kitchens and bathrooms. Repairing any broken window screens. Testing all smoke and carbon monoxide detectors to make sure they are functioning properly. Making sure downspouts aren’t improperly sloped or damaged in single-family homes. If they are, have them repaired. Repairing any damaged, broken, or missing roof shingles. Email us to see our updated list of recommended service providers such as handyman, appliance repair people, etc. Questions? Contact us at andi@andidyer(dot)com or 360-734-6479.
