These days, It can be very overwhelming just thinking about buying a new home with the high housing costs in today’s real estate market. Many people feel like owning a home is out of reach. Because of this, some people are looking for alternative ways to get pre-approved for a mortgage, including buying a house with a group of people. But, the question is…is this a good idea or option for you? Talking to your mortgage broker is very important when discussing the pros and cons of getting pre-approved for a mortgage regardless of any situation but especially if other parties are involved. It’s much more complicated than simply pooling your money together.
Why would you want to buy a house with a group of people?
1. It can make for a stronger mortgage application in the pre-approval process
If you are having trouble getting pre-approved for a mortgage on your own, it could mean that the lenders are hesitant about your credit score, debt-to-income ratio, income, employment, etc. If you apply for a conventional home loan, the lender will require a minimum credit score of 680 and a 5% down payment for houses $500,000 or less. By purchasing a house with a group of people, the lender feels more confident that you’ll pay your monthly fees, and have enough money for a down payment and loan long-term. In short, it’s like a security blanket for the lender.
2. It’s an opportunity to buy a vacation home
If you go on vacation often and want to purchase your own vacation home, you can buy a property with a group of people to share maintenance and make your cost significantly cheaper. After all you won’t be using it all the time so why not share the investment. This is a great idea if you can each schedule a time when you’ll be using the property for vacation and you have a solid relationship with the others involved. Staying at resorts can be costly so having your own flat may be something you are interested in investing in.
3. It helps build up your credit score
If you’re buying a house with a group of people and each of you is paying your monthly bills on time, it can help to increase your credit score which may have been lacking in the first place. However, this also means that if you, or one of the group, don’t pay your bills on time, it can make your credit score worse.
4. You can look at it as an investment property
If you want to purchase a home as an investment but, can’t get pre-approved, or can’t afford another house on your own, you can combine your finances with people you trust and buy an investment property. Just be aware that you may have to take out other loans in case of renovations, accidental damages, and so on throughout the many years of owning the property. It’s also important not to rely on this investment as the saviour of your finances in case the housing market goes south.
The longer you remain the owner of the home, the more equity is built up. This means the longer you wait, the more money you will make while the market is still booming.
5. You cut your expenses in half
If you’re planning on living in the home, then all of your living costs get cut in half. The other people in the group will be paying half of the utilities so it automatically decreases your living costs. If your furnace needs to be replaced, you won’t have to pay for the whole shot. They will pay their part as well.
What should you be wary of when buying a house with a group of people?
1. Be careful who you share a house with
Make sure you are buying a house with people you trust 100%. If you have a falling out with someone, you have to put your differences aside because you both own part of that home. If someone doesn’t pay their portion, the rest of the group will still have to cover the bills at the end of the day. And, if one person is financially unstable, then it could affect the credit score of everyone involved. All of your names will be on the mortgage, and if one person leaves, then you either have to sell the house or refinance without that member of the group. Both options are a headache if not handled properly. So trusting everyone is important but, making sure everyone is financially stable is important too.
Make sure you all have the same intentions in your purpose for the home. Discuss how long you plan on owning the home, any major enhancements or additions you might need to make, and if will you be renting it out to other people at some point. Since you are all paying a portion of the costs, you all have to agree on every decision you make which can be a challenge at times.
2. It may make it harder for you to qualify for other loans
If your credit score is already poor, and you buy a home with a group of people, then you are adding to the debt you already owe. Don’t forget to factor in unexpected expenses, like having to buy a new car, because this may impact the interest rates for your purchase. A big loan on your credit report, like a mortgage, may limit your ability to acquire other loans depending on your specific situation.
Why you should work with a mortgage broker to ensure that buying a home with a group of people is right for you?
Buying a home with a group of people can be very beneficial for you if done correctly and for the right reasons. Make sure to check each others’ credit reports, income, employment status, and assets to make sure everyone is financially reliable and able to make their portion of the payments before signing on the dotted line and a mortgage broker will be able to verify everything efficiently for you. It’s also important to hire a real estate lawyer to create a cohabitation agreement to outline important details like how you’re going to be paying your monthly bills. And, what happens to the house if things do go south. It’s also a good idea to get a term life insurance policy on each other, to cover the cost of the mortgage if one of the owners passes away.
Working with a reputable mortgage broker and financial advisor, like myself, Darren Robinson, is the best way to get pre-approved and to discuss your options when buying a home with a group of people. Plus, it’s free, so it’s a win-win for all of you. You get the best rates, the best advice, and the best chance of getting pre-approved for the mortgage you need. If you don’t want to buy a home with multiple people involved there are many other options, like having a co-signer or even just renting the home you live in. Whichever path you decide to take I can provide you with top industry advice and a reliable opinion on what makes the most sense for your finances long-term. Give me a call at 705-315-0516, or send me an email at [email protected] to get the conversation started.