Can’t afford to buy alone? Consider buying a home with a friend.

 In Real Estate Law

We’ve never been more connected to each other than we are now. We share our “good mornings” over Snapchat, our afternoon coffee art on Instagram and post about our dinner at one of Ottawa’s trendy restaurants on Facebook. So why not share home ownership with a friend?

With the cost of housing going steadily up, home ownership may become out of reach for many on their own but here’s an opportunity to pool resources together, pool incomes and still potentially look at home ownership. I mean you’ve already vowed to be friends forever. A 25-year mortgage should be no problem.

However, even the most maintenance-free friendships can face some tough times when it comes to sharing a home purchase. That is unless both parties are prepared for what co-ownership may bring.

Here are some major conversations you must have before entering into co-ownership:

What is your Vision of Home?

You and your friend should create a Wants & Needs Checklist for your potential home. Discuss the differences and similarities between theirs and yours and what you want your living space to be like — everything from location, to the type of building, to cute/old/charming vs. cool/new/modern. EVERYTHING. And make sure you know each other’s must-haves and deal-breakers.

Know all the costs and how will you split the costs?

Picture this, you and your friend walking into an office, slamming a briefcase full of money on the desk, and saying “WE’LL TAKE IT”, …. But if that’s not your reality then most likely you and you friend will be looking at using a mortgage to buy your home and you’ll both be responsible for making monthly mortgage payments on the property. And, no, splitting a mortgage is not like splitting the bill for a night out.

It is important to have a conversation about fees like the down payment, closing costs, monthly mortgage payment before you even begin to consider looking at homes together. However, home ownership is more than just a mortgage payment. Don’t forget to include other monthly homeownership fees like utilities, regular maintenance, property tax and one-off expenses. How will you split all of the certain costs – plumbing issues, roof leaks, etc. – that come along with owning a home?

Will you all contribute to a contingency fund? Try DIY options or immediately call in an expert? These discussions should happen before the basement floods or furnace craps out.

What will happen if someone is unable to hold up their end of the deal or wants to get out of the mortgage?

Any conversation about the potential costs of owning a home must be accompanied by a conversation about what will happen in the event that one or both parties is unable to make their payments or wants to leave the agreement altogether. Though this conversation may not be as fun as reminiscing about your old college antics, it is a must-have talk before you can confidently enter a home purchase with a friend.

Hard times happen for everyone so create an exit strategy. Have a contract about what to do when one housemate wants to leave. For example:

1.     How much notice will you require if someone decides to leave the agreement?

2.     What buyout options will exist for the remaining owner(s)?

3.     How will you determine the fair market value of the home?

4.     When, how, and under what circumstances will you ask an unsuitable co-owner to leave?

5.     What happens if something happens to a co-owner? How will those choices affect estate planning decisions and the rights of heirs?

6.     Make sure you consider the “what ifs” before you and your friend are forced into an uncomfortable situation.

The Bottom Line

Buying a house with a friend has lots of benefits: It may be easier to qualify for a mortgage; you get to share all the monthly expenses, including utilities, maintenance/repair costs and the mortgage payment. And, unlike renting, you get to build equity as you pay down the loan. Such a purchase also has challenges, however, and it’s important not to rush the decision.

To avoid trouble down the road, it’s a good idea to hire a lawyer to write a comprehensive agreement that details who is responsible for what, what happens if one of you wants to move on, and how the property will be handled if one of you passes away.

Are you prepared to have a few tough financial conversations with a friend? Are you also prepared to face a few certain disagreements along the way to happy homeownership? If you confidently answered “yes,” you—and your friendship—may be ready to stand the test of owning a home together!

This blog post was written by Diana Tebby, a member of the Real Estate and Wills and Estates teams.  She can be reached at 613-369-0384 or at diana.tebby@mannlawyers.com.

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