Buying a House with a Friend: Pros, Cons and How to Get Started

Dreaming of owning a place of your own but having affordability trouble? Here’s a homeowning hack that could come in handy: Consider purchasing a property with a pal. A relative or close friend you’re not married to could be the ideal partner to help you qualify for a mortgage loan and afford your monthly housing payments.

But cohabitating has its pluses and minuses. Learn more about what’s allowed, how this arrangement would work, and your legal rights before committing to buying a house with a friend.

In this article (Skip to...)

• Can you buy a house with a friend?
• Co-borrower vs. co-signer
• Co-purchasing scenarios
• Pros and cons of buying a house with a friend
• Financing options for co-purchasing
• Considerations for buying with a friend

Can you buy a house with a friend?

The good news is that buying a house with a friend is legally allowed and a viable option for many prospective home buyers.

“No specific rules prevent two or more people from buying a home together, as long as they meet the lender’s qualifications,” notes Carl Holman, director of Communications and Content for A&D Mortgage.

Dennis Shirshikov, a professor of finance at City University of New York/Queens College, says that in today’s housing market, the combination of high mortgage rates and soaring home prices has made solo homeownership increasingly unattainable for many first-time buyers.

“As a result, buying a house with a friend has emerged as a practical solution. By pooling resources, friends can overcome the barriers of a high down payment and stringent mortgage requirements, making homeownership accessible where it otherwise might be out of reach,” he says.

Robert Shepherd, owner of Peak & Home Partners, explains that partnering with a co-buyer is not only possible but increasingly common nowadays.

“When done correctly, it allows both parties to share the financial burden and responsibility associated with homeownership,” he says.

Co-borrower vs. co-signer

Keep in mind that when multiple people are involved in buying a home, you can either add co-borrowers or co-signers to your mortgage.

A co-borrower shares the responsibility for the loan, is listed on the deed and title, and has a stake in the property’s ownership, allowing them to live in the home with you and share in any equity. Common examples include two childhood best friends or two partners in a house-flipping project.

In contrast, a co-signer guarantees the loan’s repayment if you can’t meet the obligation; but the co-signer doesn’t live in the home or hold any ownership rights, like a parent helping their child secure a mortgage.

Most of the scenarios outlined in this article will assume a co-borrower, not a co-signer, arrangement.

Buying with more than two people

Keep in mind that co-borrowing often involves just two people, but it can also include three or more individuals purchasing a property together, which most lenders permit, even if the buyers aren’t related or married. If all parties want to be on the mortgage and the title/deed, each party will fill out a separate loan application; the lender will consider all applications together as one buying party.

Conventional loans backed by Fannie Mae generally allow up to four co-borrowers, while Freddie Mac permits up to five. However, there’s no cap on the number of co-borrowers for manually underwritten loans. Similarly, FHA, VA, and USDA loans do not impose a specific limit on the number of co-borrowers.

Co-purchasing scenarios

There are different ways to accomplish buying a house with one or more friends. One example involves friends purchasing a home as joint tenants, each with an equal stake in shared ownership and all parties listed on the mortgage and the title/deed.

“Another possibility is where multiple friends purchase a house as tenants-in-common with unequal ownership shares based on their financial contributions,” says Josh Katz, founder of Universal Tax Professionals. “For example, if one person contributes 60% of the down payment and the other contributes 40%, their ownership stakes might reflect that respective proportion. In a tenants-in-common arrangement, you’ll need a legal agreement outlining these details, including what happens if one person wants to sell their share. Or, you can set up a shared ownership agreement where each person owns a percentage of the property and contributes accordingly to the mortgage, taxes, utilities, and upkeep.”

A third option is for only one person to be listed on the mortgage and deed while the other parties contribute equally or in portion to the housing payments.

“However, that can create legal and financial risks if not clearly documented,” cautions Holman, who recommends asking your chosen lender about this arrangement.

Another possibility is to enter into a shared equity arrangement that involves a third-party helping hand. Here, the third party helps fund the down payment (but not the regular monthly mortgage/housing costs) in exchange for a portion (often the same percentage they put down) of the home’s appreciation when it’s sold.

Pros and cons of buying a house with a friend

Recruiting a crony, relative, or other trusted partner with you to purchase a home has its benefits and drawbacks. Let’s take a closer look at each.

Advantages

• Shared financial responsibility. You can split the down payment, mortgage payments, property taxes, utility bills, and maintenance expenses, decreasing the financial strain on each party.
• Increased purchasing power. “By combining incomes and savings, and including another party with a preferred credit rating, you may qualify for a larger mortgage and afford a better property than you could individually,” says Shepherd.
• Potential investment opportunity. If the home appreciates in value, both parties could benefit from the increased equity when selling the home.

Disadvantages

• Shared liability. Each party is equally responsible for paying the mortgage and housing costs. If one party fails to pay their fair share, the other is still legally obligated to cover the payments in full.
• Possible disagreements. “Differences in lifestyle, financial habits, or future goals can lead to conflicts. These disagreements can be particularly challenging when they affect property,” Shepherd adds.
• Messy exit strategy. If one party desires to sell their share or move out, it may require the other party to buy out the exiting party, sell the property, or find a new co-owner.

Financing options for co-purchasing

When co-purchasing a property with a buddy, relative, or other person, there are several different financing options you can pursue if both names will be on the mortgage loan.

“For conventional loans, the parties do not have to be married. Both parties’ credit scores, income, and debt-to-income ratios are considered, and the mortgage terms are based on the lower of the two credit scores,” Shirshikov points out.

For FHA loans, which are often preferred by first-time purchasers due to their lower down payment requirements (as low as 3.5% down), co-borrowers who are not married are allowed to be on the mortgage together. But both parties must occupy the home as their primary residence.

“FHA loans allow co-borrowers to combine their resources and may be more forgiving with credit requirements,” says Holman.

The same rules for FHA loans are true of USDA home loans, which are available for designated rural properties and can be had for zero down.

“VA loans, which also do not require a down payment, are a bit more restrictive,” continues Shirshikov. “One of the co-borrowers must be a qualified veteran, and only the veteran’s portion of the mortgage is eligible for VA benefits.”

Friends seeking to co-borrow should compare each option carefully and decide which suits their financial situation best, Katz recommends.

Things to consider when buying a house with a friend

Before buying a house with a friend, it’s imperative to discuss and agree upon several key factors.

“First, establish clear ownership and co-habitation terms, including what happens if one party wants out. You’ll also need to agree on who is responsible for what expenses – from the mortgage property taxes to utilities and maintenance,” Shirshikov says.

The experts recommend creating a legal agreement in writing (best drafted with the help of an attorney and signed by a notary public). This protects both parties and can prevent squabbles and legal disputes down the line.

“In a co-ownership agreement, you need to outline financial contributions. Specify in writing how much each party will contribute to the down payment, mortgage payments, property taxes, utility bills, and maintenance costs,” advises Shepherd.

If ownership is not 50/50, the written agreement should detail the percentage of ownership for each party.

“Also, establish rules for selling or exiting. Determine what happens if one party wants to sell their share, vacate the property, or if a disagreement occurs,” Shepherd continues. “This might include a buyout clause or first-right-of-refusal.”

Ownership structures often require all parties to agree before selling a property, though some only need a majority, and others allow an individual to sell their share or for other owners to buy it. Additionally, if one borrower can’t contribute to the mortgage, perhaps due to unemployment, the remaining borrowers must cover the shortfall.

It’s wise to discuss and document how such situations will be handled before purchasing. And it’s equally important to select a property that fits all parties’ financial situations, lifestyle needs, and long-term goals.

The bottom line: Buying a house with a friend

Buying a house with a friend or family member can be a smart idea—so long as there are clear expectations communicated and agreed upon ahead of time.

Determine what kind of loan is best for this arrangement, who owns and pays for what, and what will happen if one or more parties want out of the agreement. Discuss your options with a trusted attorney and experienced lending professional to learn more about what’s allowed and required here.