Have you ever thought about buying a home with some friends in order to share it throughout the year as a vacation property? It's not uncommon. It's often the best way to be able to afford a larger vacation home. But is it smart?
When buying a home with friends there are many things to consider starting with the loan. The nice thing is that you'll be able to split the down payment and the monthly payments with someone else perhaps even three or four people depending on the situation. However, qualifying for that mortgage will depend on each person's credit report and history.
Whoever is purchasing the home and whoever will be on the deed will be responsible for applying for the mortgage. Each credit history and report will be pulled and will determine the interest rate and feasibility of the loan. One person's bad credit could negatively affect all the mortgage terms or deny the loan altogether. Negative credit history can affect the interest rate as well in a simple .5% can really make a difference on the monthly payment. You want to make sure that everybody's credit history and report is well intact as well as their finances in general. Lenders will make sure that everyone on the mortgage is capable and responsible for paying it back.
Then you have to decide on the living situation. Will all parties be living in the house at the same time or will you take turns? If you will be sharing the premises you have to give up a little bit of your privacy. You'll have to compromise on style and learn each other's compatibility. It's best ahead of time to decide who will handle certain items such as cleaning, cooking, and housework. If you plan on visiting the property separately how will the cleanup be handled? What happens if there's a problem?
It's always best to consider the worst-case scenario and the responses both parties will take in case that happens. Of course, nobody wants to think of the worst possible outcome but it's best to have the safety nets in place in case someone defaults, leaves the place a mess or do some serious damage to the property.
Then there is the responsibility of the finances. You expect the other party to do their due diligence financially and otherwise. You'll need to come up with a down payment and closing costs. Decide ahead of time if this will be split evenly and who will deal with repairs or necessary replacements?
Any time you are dealing with a property in joint tenancy it's important to make it legal. I can't tell you how many times good friends have been split up due to the fact that nothing was drawn up in writing or made legal. Word-of-mouth, hearsay and shaking hands to get a lot of people into trouble and ruin friendships. It's always best to deal with a real estate attorney prior to purchasing a joint property. Lay down the ground rules, talk about co-ownership agreements and make sure everyone knows the situation and the rules ahead of time. It might seem silly trust me, doing these small tasks ahead of time can save a lot of headaches and hurt in the future.
Think of it this way, even though you are purchasing a property with another person the legal burden is not 50-50. It is more like 100% each. If one person fails to pay the mortgage, insurance, taxes or creates damage to the home, you will be responsible.
Consider utilities as well. How will the utilities be paid and who will pay them if the property is not occupied at any given time?
Also, talk about common goals. What is the purpose of buying the property together? How long will you own the property and what happens if someone wants out. What happens if you ever need to sell the property? All of these important details should be discussed with a real estate attorney and proper documentation drawn up. At the very least, if you cannot afford a real estate attorney these items should be drawn up in written form and signed so that everyone understands the responsibilities involved.
If you're interested in buying a home in the Columbus area please contact my office today. I can help you discuss items that you may not have thought of before and find the right property for shared tenancy in Columbus.