Years ago, before the housing bubble burst in the ugliest of fashions, it wasn’t uncommon for unmarried individuals in their mid-to-late 20s to purchase homes on their own. Today, however, buying a home on one income is much less feasible. Securing a home loan isn’t as easy as it used to be. Lenders are now imposing stricter requirements and scrutinizing credit histories like never before. Furthermore, in today’s wishy-washy economy, job security can be pretty dang illusive, and many young people are undesirable loan candidates if they’ve moved from company to company.
Millennials are taking a new approach to home ownership: Instead of attempting (and quite possibly failing) to purchase property on their own, they’re rounding up friends to serve as investment partners. In some cases, two friends purchase homes jointly and either live there together or rent it out; in other cases, groups of three or more pool their resources to buy.
Buying a home with friends can be a wise move financially and logistically, but be aware of the drawbacks.
Coming up with the down payment
If you can’t swing 20 percent down on your own, enlisting friends is a good alternative — because if you don’t come up with that 20 percent, you can get hit with PMI (private mortgage insurance), which translates into a costly premium on top of your monthly mortgage payment.
Sharing the financial and logistical responsibilities
Owning a home with friends means you’ll have more resources to cover maintenance costs and perform general upkeep. If your home has a lawn that needs to be mowed weekly and as the sole homeowner, you’ll need to either a hire a service (which can be expensive) or carve out several hours each week to get the work done. Co-owners, however, can divvy up the work.
Peace of mind
Even the most seemingly stable work situations can sometimes fall apart. If you suddenly find yourself out of work and you’re the only one responsible for paying the mortgage, you can quickly run into trouble. But if you have at least one other partner in ownership, you’ll have someone who’s invested in helping to cover your share until you’re back on your feet financially.
Counting on others
Sure, it’s nice to have co-owners to fall back on when you encounter a financial hiccup, but that cuts both ways. When the roles are reversed, it’ll be your own personal resources getting drained in an attempt to avoid delinquent payments or foreclosure.
The more parties involved with a home purchase, the more cumbersome the paperwork will be. This could make the closing process more stressful and time-consuming, and you may incur additional legal costs to have added documents drawn up.
Having to vacate your home down the line
When you buy a home on your own, it’s yours. Period. If you buy a home with friends, however, mine becomes ours. Well, what happens when you decide to get married? If you all have an equal stake in the home, chances are you’ll have no choice but to move. And if you need your friends to buy you out in order to do so, you could wind up losing money if you’ve yet to build up equity and the market is weak.
The Bottom Line:
If you do decide to buy jointly with others, be smart about choosing your co-owners. The more reliable and financially secure they are, the less likely you are to regret your decision down the line.