Want to buy a home, but still looking for that special someone? Consider this: A lot of legal documents are required at closing, but a marriage certificate isn't one of them. The person sitting next to you at closing could be your best friend, your cousin, or even someone you might marry down the road.
Nearly 800,000 people who bought homes in 2014 did so outside of a traditional marriage, according to the “Profile of Home Buyers and Sellers” from the NATIONAL ASSOCIATION OF REALTORS®.
You could be one of them. Here are a couple of stories from unmarrieds who bought homes together. Those, plus some tips at the end, will give you a sense of whether buying with a friend is something you want to pursue.
Story #1: Housemates for 10 Years
Louise Machinist, author of “My House Our House: Living Far Better for Far Less in a Cooperative Household,” and two other friends lived happily together for 10 years in the Pittsburgh suburbs.
“We’d been talking about buying a home together as a way to reduce expenses in retirement, which was 15 years away at the time,” she says.
“But then we realized, why wait?” So they combined resources to buy a home big enough to give them companionship along with privacy, while also saving on day-to-day expenses.
The grey skies of Pittsburgh were the reason they broke up. Louise and another housemate decided to buy a home in coastal Florida where the sun shines year-round.
Buying another home is always easier once you’ve got equity in your first home. The easiest way to do that is to refinance and have the departing housemate(s) cash out their equity. That can make for an instant down payment on the next home.
Machinist’s No. 1 tip? Have a serious heart-to-heart about individual money situations. She and her housemates did that before embarking on the home hunt, and it made a big difference.
“We shared all of our financial information before we made a decision,” she says. “We gave each other our credit reports and a complete accounting of our financial status. If someone is derelict on their finances, you should run away.”
Oh, and get an ironclad contract.
Story #2: A Bad Break-Up
Without a written contract, exits get messy. That’s what Lauren Bowling, author of the personal finance website “L. Bee and the Money Tree,” found out when she and her then-fiancé broke up after buying a house together.
“Everything was in my name, but it was still a tricky situation because he’d given me money for a down payment, renovations, a portion of the mortgage, everything,” she says. “He threatened legal action after the breakup because he had given me that money.”
In the end, Bowling reimbursed her ex for all the funds he’d put into the house — even his portion of the mortgage payments. Without a contract in place, it was up to Bowling to make the decision about what was fair — and it was an expensive call.
“In general, people don’t stay in a home for more than seven years,” says REALTOR® Adam Bray-Ali of Pasadena, Calif.-based Podley Properties. Shared home ownership may benefit everyone for those years, but eventually, one of you may decide to leave.
Even so, Bowling says buying her home was worth it. She boosted the home’s value by completing a number of renovations and rented out a few rooms to offset costs.
“I wouldn’t have been able to start my own business without my roommates helping me pay the mortgage,” she says. “After fixing up the home, I also have equity in it that I can leverage for future ventures and to make a profit when I go to sell the home.”
Tips for a Beneficial Home Ownership Partnership
Make sure lifestyles and goals match. Are you fussy about the thermostat? What about cigarette smoke or drug use? Do you have pets? You can gamble with a roommate when renting, but the stakes are much higher if you’re buying with another person. So find out if you’re compatible before moving forward.
Share financial information. When it comes to money, you’ve got to be brutally honest with your prospective long-term roomie. After all, even the most solid of relationships can be wrecked by financial disputes.
Create an exit strategy. Have an ironclad contract about what to do when one housemate wants to leave. 5 scenarios to include:
- How much notice will you require if someone decides to leave the agreement?
- What buyout options will exist for the remaining owner(s)?
- How will you determine the fair market value of the home?
- When, how, and under what circumstances will you ask an unsuitable co-owner to leave?
- For older co-owners, what end-of-life conditions are in place for surviving co-owners? How will those choices affect estate planning decisions and the rights of heirs?
Find an experienced agent. Finding an agent who is enthusiastic about making your situation work is also critical to success. Non-related buyers come to the table with different expectations about how the house-hunting and buying process will be handled, and the right agent can help make sure the whole thing runs smoothly, from the first offer to your closing date. “You’ll need an experienced agent who understands how to get deals done,” Bray-Ali says.
Work with a contract lawyer. Don’t put your expectations for how to handle co-ownership issues on the back of a napkin. For all the reasons discussed above, getting it all in writing — legal writing — is crucial to co-owning success.
Here’s to friendship — and a new adventure together.