Buying a house with a friend can be a great way to make a nicer place more affordable, but splitting the responsibility can impact your credit score and Debt-to-Income Ratio (DTI).

You and your best friend have lived together for years and decided it’s time to build some equity instead of spending your hard-earned cash on rent. So, it’s time to look into buying a house. Since neither of you has the funds to do it on your own, you decide to go in on the purchase together—but where do you start? And is buying a house with a friend even a good idea?

Fortunately, the

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is here to answer that question. In this article, we’ll go over how to make the purchase and the pros and cons of buying a house with a friend, including what it means for your finances.

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Can you buy a house with a friend?

Yes, you can buy a house with a friend. Whether you’re looking to go in on an investment property or move in together, owning a house with your friend is possible. You could even buy a house with a group of friends if you wanted to—as long as everyone can pay their share of the mortgage.

How to buy a house with your friend

As with any big financial decision, it’s important to put some thought into how you’ll buy a house with your friend. Here are some important things to consider before taking your first steps.

Make sure it’s the right friend

Some people make great friends, but not great roommates or business partners. Before considering buying a house with your friend, make sure you understand each other’s financial situations and can be cleared for a mortgage.

Before you talk seriously about buying a house with someone, get on the same page. Does your friend have a stable job or will you be worried about them making mortgage payments? How is their credit? How long do they plan to stay in the house? If any of these answers don’t align, it’s probably not the best idea to go in on homeownership together.

Decide how you’ll split ownership

While buying a house with a married partner is the most common type of co-ownership, there are different types of co-tenancy between friends that dictate how you will legally share ownership. The most common of these are joint tenancy and tenancy in common.

Joint tenancy is an ownership agreement that gives each owner equal shares of the property, but it has stricter rules about financial responsibility. Importantly, joint tenancy creates a right of survivorship—if one owner dies, the surviving owners automatically receive the interest in the property.

With tenancy in common, you can decide how to divide shares of the house—it doesn’t have to be equally split. However, this type of co-tenancy requires probate, meaning the deceased owner’s shares of the property will be determined by their will or by local inheritance law.

MORE: How to settle into a new house

Decide what kind of property you want

The type of property you choose will depend on your long-term plan. If you want to live together for a long time and not worry about renting, you’ll probably want to consider a single-family home.

However, if you want to make a little extra income, you might consider buying a multi-unit building together as a good investment.

Plan for the possibility of moving or selling

There’s always a chance it doesn’t work out or you decide to move in the future. You can always sell the house, but you should have a plan in place for that possibility. Consider whether you both will sell your share or one tenant will buy the other out of their half and refinance as a single tenant.

You’ll also need to plan for the costs of selling the house, including any remodels, inspection costs, or working with a realtor.

Divide responsibilities equally

Homeownership requires a lot of time, effort, and of course, money. Decide upfront who will take on which responsibilities, like repairs, utility costs, and general maintenance of the property. Having two people to take care of the place will make things easier, but make sure you’ve got the same expectations in mind when divvying up jobs.

Make an ownership agreement

As entering a mortgage contract is a legal agreement, it’s smart to protect yourself with an ownership agreement that sets your expectations for the property. An attorney will draft a Cohabitation Property Agreement that decides things like buyout plans, utility, and maintenance responsibilities, as well as who gets the property in the event of a split.

While you could just verbally agree to these terms with your friend, having a legally binding agreement can prevent future issues.

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How to find car and home insurance quotes online

Pros and cons of buying a house with a friend

Now that you understand how to buy a house with a friend, it’s probably smart to consider whether it’s even a good idea. Here are some pros and cons you should consider before making a decision.

Pros:

Pooling your resources: By sharing a down payment and mortgage, you have more options for what you’re able to afford and may be able to get a nicer place.

Easier to get a mortgage: By paying more for a down payment, you’re much more likely to get approved for a mortgage.

Split costs: If you’re a first-time homebuyer, being able to split the costs of homeownership is a blessing.

Avoid mortgage insurance: Being able to afford a 20% down payment means you won't have to pay for private mortgage insurance (PMI).

Building equity with a pal: While renting means contributing money to something you don’t own, buying your own place allows you to build equity. And you get to do it with a good buddy!

Cons:

Credit score complications: You may be splitting the mortgage payment, but you’re both responsible for making sure the full payment is made on time. If your friend falls behind on their share of the mortgage, it could impact your credit score.

Challenges getting other loans: If your credit score is negatively impacted by your friend, you may have trouble getting loans for other things, like cars, education, and so on.

Moving out is difficult: Once you’re in an investment with someone, there’s no easy way to exit the situation. If one of you moves out, you might be forced to sell the house outright if the other person can’t shoulder homeownership alone.

The fine print: Homeownership involves talking about shared responsibility and inheritance; what happens to your share of the house if you die? These are heavy topics that can be hard to work out without a legal agreement.

Your relationship might suffer: Investing in property is a huge responsibility, and your relationship with your friend is bound to change under these new circumstances. It could be that you don’t work together as well as you thought you might before you took on homeownership.

MORE:

Questions for a potential roommate

Prepare for a big commitment

Ultimately, buying a house is a big deal. While it may be advantageous for both of you, there are a lot of things to consider before taking a leap of faith. Make sure that you trust your partner, have prepared adequately and done all the necessary research before buying a house with a friend.

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