How to Buy a House With a Friend: A Step-by-Step Guide

The idea of co-buying a house with a friend is no longer as unconventional as it was a few years ago. Rising prices and higher interest rates have forced a growing number of buyers toward more creative solutions – and pooling resources with a friend is one of the most practical ones available. A Rocket Mortgage survey found that nearly 60 percent of renters are open to the idea of co-buying a house, with the majority citing affordability as their primary reason.

The appeal is clear. However, the process of actually doing it is less obvious. Buying a home with another person involves a sequence of steps that most first-time buyers haven’t encountered before. Skipping any of them creates problems that are expensive and complicated to unwind later on down the road.

Here’s how to move from the idea to the closing table.

Step 1: Have the Uncomfortable Conversation First

Before you look at a single listing, sit down together and talk about money. Like, really talk about money in a way you probably never have before. This conversation is what will tell you whether co-buying with this particular person is a good idea or not

Share your full financial pictures with each other. This includes credit scores, monthly income, existing debts, etc. You need to look at what savings you have available for a down payment and closing costs, as well as any monthly budget constraints.

This level of transparency can feel invasive, but that’s sort of part of the point. If you can’t have this conversation openly, you’re not ready to enter a six-figure financial partnership together.

Step 2: Get Individually Pre-Qualified

Before you apply for a joint mortgage, each of you should get individually pre-qualified to understand where you stand on your own. This step reveals each person’s borrowing power, credit standing, and any issues that need to be addressed before a joint application.

If one person has a significantly lower credit score, that score will affect the terms of the joint mortgage. Lenders typically use the lower of the two scores when determining the interest rate. This means one person’s credit profile can cost both of you money every month for the life of the loan. Knowing this in advance gives the person with the lower score time to improve it before you apply together.

Existing debt affects the equation too. Student loans, car payments, and credit card balances all factor into the debt-to-income ratio that lenders use to determine how much you qualify for. If one person is carrying significant debt, that reduces the joint borrowing capacity, even if the other person is debt-free.

Step 3: Agree on the Big Things

Once you understand your combined financial position, set parameters for the search. This includes a budget range based on what you’ve been pre-qualified for and what you’re comfortable paying monthly. You’ll also want to think about geographic areas that work for both of your commutes and lifestyles. Then there’s the type of property, whether that’s a single-family home, a condo, a duplex, etc.

Be honest about your non-negotiables versus your nice-to-haves. If one person needs a home office and the other needs a fenced yard for their dog, those requirements are obviously going to shape the search. If one person wants to be in the city center and the other wants suburban space, that tension needs to be resolved before you start touring properties.

Step 4: Hire an Attorney

Before you make an offer on anything, hire a real estate attorney to draft a co-ownership agreement. This document will govern the partnership and protect both of you in complicated or emotional scenarios.

The agreement should cover:

• Ownership percentages and how they were determined.
• How the mortgage, taxes, insurance, and maintenance costs are divided.
• What happens if one person wants to sell.
• How the property gets valued in a buyout scenario.
• Right of first refusal for the remaining owner.
• What constitutes a default (and what the consequences are).
• A dispute resolution process for disagreements that can’t be resolved easily.

Beyond this, your attorney will also advise you on the ownership structure. There are several different options, and the right choice depends on various factors that will be specific to your situation.

Step 5: Apply for the Mortgage Together

With your agreement in place, apply for a joint mortgage. Both of your income, credit, assets, and debts will be evaluated together. The combined income strengthens your qualifying position, while the weaker credit profile and the combined debt load work against it. The lender weighs all of these factors to determine the loan amount, interest rate, and terms.

Be sure to shop multiple lenders. Rates and terms vary, and the difference between lenders on the same loan can amount to thousands of dollars over the life of the mortgage.

Making Co-Buying Successful

The steps above aren’t complicated. However, they are thorough. And thoroughness is what protects you in these situations. Don’t skip over any of these steps because they’re uncomfortable or time-consuming. The effort you put into this on the front end is what will protect you on the back end!