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Buying Property with Friends
The reason most people end up buying property with friends or siblings is usually due to high price of homes and the difficulty in borrowing enough money to buy one.
If your problem is that you can't get a big enough mortgage to buy on your own, buying with a friend may be a good option. (A few of my friends didn't earn enough money to get on the property ladder on their own, so they ended up buying with friends and it worked out well for them).
It is important to put some thought into it and come up with an agreement to make sure it works out smoothly.
Getting a Mortgage:
Most mortgage lenders are happy to offer mortgages to friends buying property together, as long as the friends meet with the normal lending criteria. (Generally, they will only take two incomes into account, even if there are more than two people buying the property together).
- You have to take out a joint mortgage together.
- Borrowers are 'jointly and severally' responsible. This means that rather than being responsible to pay half the mortgage, each borrower is responsible for the whole amount.
- So, if one person doesn't pay, the lender will expect the other to make up the difference.
- If payments are missed, it would effect both borrowers credit rating.
- So if you have any doubt about your friends ability to pay the mortgage, either now or in the future, you should think twice about buying a property with them.
Making an agreement - things to consider:
- At some stage, one person will probably want to move out or sell up, so you should discuss what would happen in such a situation.
- Agreeing a minimum period, such as 3 or 5 years, where you both parties agree you won't sell, without the agreement of the other, is worth considering.
- Legal agreements can be drawn up to give the remaining friend 'first option' to buy out the share at market value.
- Each owner should agree to take out and maintain an accident, sickness and unemployment insurance policy to the value of their share of the mortgage & you should also consider adding serious illness cover to your mortgage protection policy.
- What happens in the event of death?
- What happens if one person misses mortgage payments?
PROS of buying with a friend:
- You can afford to get on the property ladder
- You can share the costs of buying (such as legal fees), furnishing and decorating the property.
- You'll share the ongoing costs such as mortgage payments, bills etc
- You'll own a share of a property instead of renting and paying 'dead money'.
CONS of buying with a friend:
- You only own half the property
- At some stage in the future, you'll generally have to sell the property or buy the other persons share.
Just Make Sure:
- Make sure you both have the same expectations and get your solicitor to put an agreement in writing.
The Next Step:
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