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When we think about buying a home, we think about the traditional situations. You might buy a starter home on your own, or you could get married or start a family and then buy a home.
We tend to view homeownership as something we do alone or with a significant other, but there’s a new trend becoming increasingly popular, which is buying a house with your friends.
Millennials are the primary demographic starting mortgages with friends, and they’re often putting off getting married or having kids.
Co-buying houses with friends isn’t necessarily a positive reflection of the state of the housing market, though. Buying a house is increasingly unaffordable, even when it would have been much more attainable a few decades ago.
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Why Co-Buying?
There is undoubtedly a housing crisis going on right now, and there is a significant shortage of inventory which isn’t showing signs of getting resolved any time soon. When people try to buy a home, they’re often priced out or beat out in bidding wars.
Millennials creatively solve the economic hurdles that might otherwise block them from homeownership with co-buying.
According to the National Association of Realtors (NAR), the number of buyers purchasing as unmarried couples has been rising throughout the pandemic. During the pandemic, a lot of people re-evaluated their living situation. Renters wanted more space, so they thought rather than getting a roommate and continuing to rent, why not buy.
Even before the pandemic, millennial homebuyers were in a tough situation. Saving for a down payment is difficult, particularly with student loan debt and rising living costs. Then, as soon as millennials got to that peak point where they’d normally be buying a home in 2020, a boom began that led to a historic inventory crisis.
Home prices have reached record highs, and starter homes were the biggest victim in the shortage of properties.
Alternatives to the Traditional Lifestyle
The millennial generation has cultivated a new normal, including waiting to get married and have kids. Marriage and birth rates continue to decline, and this generation isn’t settling down as early or in the way that previous generations did.
Still, homeownership remains important to millennials.
Buying a home on your own isn’t always possible with a single income, and around 40% of adults who aren’t in a couple make less money than their peers.
The solution?
Teaming up with a friend or a roommate to cut the price of a home by half. You can potentially buy a home even when you have less money saved.
You may also be able to cut costs in other ways if you take on a communal living model where you’re sharing household utilities and other living expenses.
The Logistics
If someone is considering co-buying with friends or roommates, economists say you should have a formal agreement that will outline the terms for various scenarios. These scenarios include buying out someone who wants to leave the situation or ending the arrangement altogether.
There are also downsides to buying with a friend or roommate. For example, if one of you has a lower credit score than the other, that will negatively affect your mortgage rates. Your friend can affect your credit score too. For example, if they fall behind on their payments, you’re going to be financially impacted.
There are a lot of details that you’re going to need to talk to a professional about, like inheritance issues and how shares are divided. You may not be comfortable having these conversations with a friend or someone who isn’t a family member or significant other.
Overall, it’s an interesting approach to homeownership at a time when it could otherwise feel unattainable but co-buying also isn’t without pitfalls. | BidBuddy.com
