Buying a home with friends is an exciting journey that will get you on the property ladder sooner. You can do so by combining your savings with friends, or even family, such as a sibling. With everyone’s input, you may be able to, together, borrow the amount required to buy the property you all want. Another benefit of buying a home with your friends is it gives you the opportunity to share consistent expenses related to the home, such as maintenance, rates and repayments. Buying a home with friends is like renting but better. You own it and it’s not dead money.
So, how can you buy a home with your friends?
1. Choose your Co-Owners Carefully
Owning a home with one or more friends or family is a big commitment. Make sure you completely trust each other and that you are comfortable with sharing personal and financial information with them. Ensure you discuss the goals each person has for the property and for their own situation. Be aware of the potential risks of owning a property with other people. By having the challenging and uncomfortable conversations upfront, offering transparency and vulnerability to each other, you can make sure you are on the same page before embarking on your journey together. Some questions to ask each other could include:
- What is their end goal?
- Would they want to sell in the next 5-10 years?
- Who will live in the home?
- Is this an investment property or a place for their family to live?
2. What Can You Afford
Take the time to carefully consider and determine how much each person can afford and contribute to your deposit and home loan repayments. It is vital to all be on the same page with one another so that you know what to expect from one another going forward. It’s also equally important to ensure you all have stable incomes and appropriate spending habits. If interest rates were to spike, or if the property needed maintenance, everyone needs to pitch in equally.
3. Get Help From Outside Sources
Consult a lawyer or a financial adviser to gather unique and personal information and advice based on your personal goals and circumstances. These professionals can also help you understand any risks that may be posed by buying a home with friends. A lawyer can also walk you through different scenarios of disputes and structures of co-ownership. You will need at least a legal document called a property sharing agreement, this will stipulate who has contributed what, the conditions and what would happen if you were to sell the property. Almost like a property prenup between mates.
4. Gather the Deposit
Generally, a deposit needs to be at least 20% of the purchase price. This is also assuming that at least one of the co-owners will be living in the property. You can combine your savings together to get started. Also check what everyone’s Kiwisaver looks like. Figure out if you all have one and whether you can each withdraw yours and combine them together for the deposit.
5. Apply Together!
Like you would if you were just with a partner, apply for conditional approval to see how much you may be eligible to borrow together as a group. To do so, you’ll need to share documents with your potential lender such as proof of income and bank statements. So again, make sure you are comfortable enough with one another to do this! It takes a considerable amount of time and energy to apply and that is multiplied the more people are involved. So make sure that everyone is ready to provide information. Also bear in mind that someone might not get approved. If this happened, this could impact your loan amount or ability to take out a loan at all.
6. Establish a Property Sharing Agreement
Work with lawyers and with each other to create a property sharing agreement between you and your friends. A property sharing agreement outlines the rights and obligations of each co-owner regarding the property. It is always a good idea to seek independent legal advice before you each sign the agreement so that you can reduce the risks of conflict down the track.
7. Go House Hunting
Dedicate time together to search for the perfect property. Make sure you agree on a budget, a house style, any non-negotiable amenities, and locations before you start searching. Everyone needs to see the property and agree on it before looking at making an offer.
8. Make an Offer Together
You’ve found the property. Now it’s time to share the details with your mortgage broker who will help you confirm the amount with the lender and reiterate any conditions that need to be met before you can provide a financial offer on the property.
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