Investing in a property, be it for short-term profits or long-term gain, is always a good idea. Parking your money in a safe and stable investment is a sure shot way to make a decent return on your investment; the property market is usually considered to be a good investment.
But, is buying a house with a friend a good idea? Well, on paper, buying a house with a friend seems like a good idea because the investment is split – now, you only have to pay half the deposit and half the mortgage, which is pretty good. But, before you start looking at properties with a friend wonder how much is my home worth, you might want to think twice. Investing in a property is like investing in a business; sometimes, a good friend is not always a good business partner. So, if you are thinking about buying a house with a friend, here are some pros and cons which might help you make a decision on your ‘joint investment’.
The pros and cons of buying a house with a friend
Pro: Higher chances of getting a mortgage
Lenders and banks have become very strict with their lending criteria, especially during the Covid-19 era. That is why, it is actually very difficult to get a mortgage in this day and age. Most lenders look at credit scores, debts, past payments, current income and so on to calculate whether or not an applicant should be given a mortgage or not. However, when there are two incomes, two credit scores and two applicants that are willing to co-sign on a loan, then the chances of getting approved for a mortgage becomes much higher.
Con: Your credit score might decrease
While you might be paying your mortgage payments on time every month, your friend might be behind on their payments. But, since both your names are on the mortgage application, not only will your friend’s credit score get affected due to the late payments or faulty payments, but your credit score can go down too. So, even though you might be doing everything right, any faulty payments by your friend could have a devastating impact on your credit score.
Pro: Your budget will be higher
When there are two incomes instead of one, you can probably afford a bigger budget. So, if you were initially looking at a two-bedroom house in a cheaper locality, you and your friend will now be able to afford a two-bedroom house in a much better area. By combining two incomes, you can increase your budget drastically.
Con: Refinancing can be a problem
If one friend decides to move out, then there are only two options: either both parties sell the house or the mortgage is refinanced. If both parties are unwilling to sell the house, then the bank or lender will have to refinance the mortgage in the name of a single individual. However, if you happen to be in a tough spot at that time, or if you are having financial difficulties, then it might be difficult for you to make ends meet.
Pro: Monthly expenses are divided
If you are buying a house with your friend so that you both can move in together, then the monthly expenses will be divided. That means half the utility bills, half the monthly expenses and half the mortgage payments. And of course, shared taxes. For a buyer who is on a budget, buying a house with a friend is a great way to climb onto the property ladder without dishing out a whole lot of money every month for utility bills and mortgage payments.
Con: Living together might not be easy
If you have previously lived with this friend in a rental property, you might think that buying a house and living together will be just easy. Unfortunately, living together when you are both homeowners could be problematic. One friend might not want to pay the monthly utility bills for the month that they are away which could lead to a disagreement. For instance, if one friend had guests over for a week, the other friend might expect the first friend or his guests to pay more for that week, which could also lead to arguments. If there are problems between the two homeowners, then the only solution would be to sell the house which could take time.
In conclusion, think long and hard before buying a property with a friend. Weigh the pros and cons and make a sensible decision before making such a big investment.