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First Time Home Buyer Series: Buying a Home with Friends

As first time home buyers, it may have crossed your mind to purchase a home together with friends. After all, you’d be able to qualify for more, share the mortgage payments and bills, likely making this option more cost effective than purchasing a place on your own.

Hang on, before you jump into any major decisions, let’s think this through and consider a few problems that may arise when you purchase a home together with friends.

1. Your Credit Reports are now tied together.

Whilst this may logically make sense that when you apply for a mortgage together that your reports are linked, however what some people fail to think about is the negative affects this may have on your personal bureau or on your personal finances.

If a friend decides to become irresponsible financially, is going through financial hardship, or whatever the case may be, it will likely affect their credit bureau. How does this affect your personal finances? Your friend’s poor financial decisions may have a huge impact on whether or not your lender chooses to renew with you or if you will qualify with another lender.

Also, if someone forgets to put money into the account one month and the mortgage payment is now considered late, that will also show on your credit bureau. A late mortgage payment is going to show on your bureau for the next 7 years, making it challenging to get a mortgage without having to go the private lending route.

2. You may not qualify for additional loans or credit

Sharing expenses with friends is a great way to have less of a financial burden upon yourself, however it may have more of a burden credit wise when you’re looking to get a loan or more credit.

The way that creditors calculate debt service includes 100% of your mortgage debt, even when you’re technically only paying a portion. According to lenders and creditors, you are 100% responsible for 100% of the debt. This may mean the total mortgage amount takes up all of your income or more, therefore you have no funds to allocate for other loan or credit payments.

3. Someone wants out

Your initial plan may be to purchase this home together to save on costs and stay together for the next 6 years or more. The characters on Friends did it, so why can’t you?

Life happens. Someone may want to get married, maybe have kids, maybe they want to move, maybe you have a falling out. Whatever the case may be, you have to think about what you are going to do if this happens. Do you buy them out? Do you sell their share to someone else? Do you have to sell the house to pay them their portion of the equity?

Contact Rose Blankenagel today if you have any questions regarding your mortgage or your situation.

-Real Mortgage Advice