If you’re considering purchasing a home with a friend and sharing a mortgage, this new article from The New York Times offers some valuable advice.
Young adults stuck in expensive rentals may be tempted to pool resources with friends to buy a shared home.
This type of arrangement can potentially cut buyers’ individual expenses, while providing them with a potential equity gain and a mortgage interest tax deduction. But these ventures can also end badly if buyers assume that friendship alone will see them through any future difficulty.
Before applying for a mortgage, the co-borrowers should fully reveal their income, debt and credit status to each other, said Mike Venable, a senior vice president and head of underwriting for retail bank operations at TD Bank. “It definitely needs to be someone you really trust,” he said.
Co-buyers should be aware that the mortgage underwriter will base their eligibility on the lower of their credit scores, just as with married couples jointly applying for a loan. They should carefully consider the stability of each other’s income, and how long one buyer could cover the mortgage if the other fell short.
Mr. Venable also recommends planning upfront for how home repairs, insurance and other expenses would be managed in a detailed co-ownership agreement.
