Friends who financially club together are more likely to be able to afford a home, according to latest statistics. It was recently revealed that 52% of first-time buyers rely on family and friends to help fund their down payment. But now a new trend has started where friends are co-buying properties to ensure they all get on the property ladder. But with a serious amount of money involved, you must ensure you know what you’re getting into.
Consider credit scores
Ideally, you need to invest in a property with friends that have a similar credit score to you. You usually need a credit score of at least 620 to qualify for a mortgage. A score of around 740 will ensure you get the best interest rates. This is where there can be problems. If you have a high credit score but the friend you’re buying with has a significantly lower one, you’ll lose out. The amount of interest you pay will be based on the lowest credit rating among all of you, so you could pay more than you would if you took out a mortgage on your own.
Where will you buy?
The recent shift in working from home has led to 48% of people saying they’d like to live in a rural location or small town. You need to ensure that you and your friends all want the same thing. If you agree to buy away from a big city, there are some financial benefits. First of all, homes in rural locations are up to 30% cheaper. They also tend to be bigger, which is ideal when there’s going to be a group of you living there. There are also special loans available for people buying in rural communities. USDA home loans are a type of federal government aid where there’s no down payment and low interest rates. This is beneficial if you and your friends are strapped for cash and it eliminates the credit score problem highlighted previously.
The average length of a mortgage in the U.S. is 30 years. It’s likely that at some point during this time one of your friends will want to move on. This can be hard financially as you’ll have to consider buying your friend’s shares in the property. You’ll then become liable for their part of their mortgage, as well as their share of all the bills. If you all decide to sell up, you will all have to pay off the remainder of the mortgage. The worry with this is that it may come at a time when you’re not in a financial position to do so.
There are certainly benefits in co-buying property with friends. But, it’s important you consider the bigger picture too, so you can make the best decision for you and your finances.