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Joint Property Ownership: Buying Property with Friends

March 16, 2022
moving out for the first time

Joint property ownership can be a difficult area to navigate if not prepared to face some unexpected challenges. If you are considering buying property with friends, it is important that you take the necessary actions to make the process as smooth as it can be. 

Before embarking on this journey, we’re going to help you understand the basic steps, the pros, the cons, and just how much effort to expect.    

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How to buy property with friends

Entering a realm such as buying a property with other people is something that requires careful research . Firstly, you must find who to go on the journey with. 

Finding the right friend

Choosing someone reliable, trustworthy, and financially equipped for something like this is important. Property co-ownership can be a tricky relationship to navigate with friends that do not hold these qualities.

Once you have decided on the perfect person or people to buy a property with, you must get the joint decision in writing. Every person involved in a co-ownership agreement must seek independent legal advice. A co-ownership agreement ensures that there will not be as many blurred lines when it comes to rights, obligations, disputes, and a potential exit strategy. 

Deciding on ownership structure

Next, you should decide on the ownership structure between you and your friends. Joint property ownership can come in the form of joint tenants or tenants in common. A joint tenant means that both people own the property together, but, as individuals, they do not own anything.

‘Tenants in common’ refers to both people owning a predetermined portion of the property. People tend to lean toward the latter option when buying a house with friends. 

Sort out funding

After establishing the legal side of things, the next step is sorting out the financials. If you are not upfront about the numbers right away, things can become overcomplicated.

You and your friends should discuss how much each person has saved, how much everyone can afford, and how much everyone feels comfortable borrowing. Because it does not always have to be a 50/50 split, this is when people determine how much of the property each buyer will own.

Find the right property

Once technicalities are sorted, you choose a property! There should be complete transparency in this process. Because more than one person is involved in the decision, it must reflect the interests and needs of each buyer.

This is oftentimes where disagreements become prevalent, but as long as you have a predetermined relationship and situation sorted out, any disagreements should not be as detrimental to the process.    

buying property with friends

Getting a Loan

Receiving a loan when there are multiple borrowers can cause a multitude of roadblocks if not approached correctly. Most people avoid this by working with a mortgage broker before even beginning the process of looking at different properties. This way, you and your friends will know exactly to what extent your borrowing capacity is as a unit.   

A mortgage broker will advise that you and each of your friends get a credit check. By doing this, you can determine who has the best credit versus who is not pulling much of their weight. A mortgage broker can help with navigating the financials behind joint property ownership if you are unsure of what to do in a situation like this.

Many lenders are willing to work with co-borrowers who want to find the best home loan for themselves. There are not many differences compared to a normal loan, but each person’s liability will be spelled out in the name of transparency.

Many mortgage breakers recommend split loans for co-owners. This entails one loan being split depending on the portion of the property you are liable for. This is beneficial because although each split will have both names on it, the liability and responsibility are clear to the buyers, leaving no room for debate.

Joint property ownership requires a level of togetherness but drawing distinct lines can reduce future conflict.      

Advantages of buying a property with friends

The pros that come with owning joint property are undeniable and can benefit you in the long run. One advantage is that it boosts your purchasing power. When you pool your resources, you will probably be able to afford the house and area that you want. This may not be so if you tried to purchase on your own.  

It is also easier to get a mortgage when it comes to joint property ownership. What you can afford for a down payment will be increased with help from your co-borrowers, making it easier to meet credit score requirements. 

There is also no mortgage insurance. If you decide to split down payment costs, you will probably be more equipped to pay at least 20% of the cost of your home upfront. Because of this, you will not have to be concerned about private mortgage insurance.

Joint property ownership also allows for split costs, building equity together, getting your first home, and the consistent company of a friend, which is always a plus.  

Disadvantages of buying a property with friends

buying property with friends

Even though there is a multitude of advantages to buying a house with your friends, you must consider the flip side of things to get a full scope.

For example, every mortgagee’s credit score is considered in mortgage terms. If one of your friends has significantly poor credit or continuous problems, it can affect the process of purchasing your home despite your own financial stability. Your friend can also affect your credit score in this way.  

If this endeavour fails, it can be a headache to move out. Since there are multiple names on the mortgage, you will have to go through a refinance to get the house solely under your name. This is only possible if you are in a good place financially, though. 

Another disadvantage is all the conflict that may incur. The fine print holds a lot of power over co-ownership, which calls for heavy, uncomfortable discussions. Lastly, because of all these circumstances, your relationship may suffer.

This is why choosing who to embark on a journey like this can be a make-or-break decision.   

So is joint ownership a good idea?

Buying property with friends may seem like a daunting task, but as long as you know what must be done to lighten the load, it can be a smooth process. Looking at the advantages and disadvantages allows for an encompassing understanding of the situation you will be going through.

On the other hand, fully grasping exactly how to do so is just as important. Abiding by the information provided can make a process that can be stressful turn into a fun and exciting one for you and your friends.   

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