Many of us have saved money by living with a friend in a rented apartment at some point in our lives. But, how many of us would take it up to the next level and consider buying a home with a friend or family member?
As house prices rise, however, more and more people seem to be doing just that. Co-buying has its obvious sticking points, but there are many advantages to be gained by doing this. Besides the financial appeal, other more social advantages can be enjoyed.
Not convinced? Let’s take a look at some of the biggest advantages to co-buying a home.
It’s Easier to Get Approved for a Mortgage
In the post-2008 world, getting approved for a mortgage is becoming increasingly difficult. With lenders wary of borrowers who can’t fulfill their end of the deal, regulations and vetting processes have tightened up considerably over the last few years.
Many lenders require you to pay at least a 5% deposit on your new home, and finding that kind of lump sum on your own can be tricky. In partnership with a friend or family member, however, it’s much more possible to find the funds. Also, just like with the down payment, two people will always find it easier to cover the closing costs.
In addition to ensuring you can come up with the down payment, lenders will also take a long hard look at your credit report. It only takes one unfortunate black mark to tarnish your record and lower your score. You should do your best to improve your credit score, but when you apply with someone else, lenders will take an average of both of your credit scores.
Your Expenses Are Shared
Once you’ve sealed the deal and moved into your new home home, you and your co-buyer will have other costs to deal with. Monthly utility bills, annual taxes and insurance payments, and maintenance costs are just a few things you will need to keep on top of.
With two people, it’s much easier to cover these expenses, leaving you both with more cash in your pocket each month. In turn, your personal finances will be easier to manage, helping you stay debt-free and able to build up a healthy savings account, as well as enjoying some of the finer things in life.
You Have a Wider Choice of Homes
When you pool your cash with a friend or family member, you’ll find that your options for where you can live increase considerably. Rather than both of you buying shoebox homes or properties in the outskirts, you’re more likely to be able to afford a nice-sized home in a more desirable location.
A Great Chance to Build Up Equity
Equity is the difference between the value of your home and the amount you owe the lender. The more mortgage payments you make, the higher your equity. The longer you and your co-buyer live together and make payments, the more you’ll save up. So, unlike renting, when the time comes to go your separate ways, you will have gained cash and will be in a better position to put down a deposit on your own place.
It Beats Living Alone
One final point — and one that is often overlooked in favour of financial advantages — is the social side of living with a friend or family member. Provided you get along well – and you really should if you’re considering co-buying – you always have someone to hang out with. Of course, you’ll have your own spaces in the home, so you’re not always in one another’s way!
It’s important that both buyers are on the same page and completely honest with each other about their goals for a co-buying arrangement. By setting out a plan and working towards the same thing – e.g. a 5-year plan to build up enough equity to afford your own separate places – co-buying can work fantastically well, with both parties enjoying many advantages.