The Rise of Co-Buying: Purchasing Homes With Friends

High housing prices and climbing interest rates have made the traditional path to homeownership difficult for single buyers. To beat the market, many renters are teaming up with friends or roommates to split the costs. If you are considering this route, you need strict legal and financial frameworks to protect your investment and your friendships.

The Co-Buying Trend by the Numbers

Purchasing property with a non-romantic partner is no longer a fringe idea. A recent Zillow report highlighted that nearly 14 percent of homebuyers purchased their property with a friend or relative. When the national median home price sits above $400,000 and interest rates hover near 7 percent, splitting a 20 percent down payment suddenly makes financial sense.

Instead of one person struggling to save $80,000 for a down payment, two friends can bring $40,000 each. However, buying a house is a massive legal commitment. You cannot just split the mortgage like you split a dinner bill on Venmo.

Financial Steps Before You Shop

Before looking at houses on Zillow or Redfin, you and your co-buyer need to have a completely transparent conversation about money. Lenders will evaluate both of your financial profiles to determine your loan eligibility.

Check Your Credit Scores

When two or more people apply for a joint mortgage, lenders look at the median credit score for each applicant. They will then use the lowest median score among all the borrowers to set your interest rate. If you have a FICO score of 780 but your roommate has a score of 620, the lender will price your loan based on the 620 score. You need to know these numbers before applying.

Create a Joint Banking Setup

Open a dedicated joint checking account for house expenses. Banks like Ally Bank or Capital One offer zero-fee accounts that work perfectly for this. You should both agree to automatically deposit your share of the mortgage, property taxes, and insurance into this account every month.

Get Pre-Approved Together

Apply for a joint mortgage pre-approval. Conventional loans backed by Fannie Mae and Freddie Mac allow for multiple borrowers. FHA loans are another excellent option, requiring down payments as low as 3.5 percent. Major lenders like Rocket Mortgage, Chase, or your local credit union handle multi-borrower applications regularly.

Legal Structures for Co-Ownership

How you hold the title to the property is the most critical legal decision you will make. You have three main options when buying with a friend.

Tenancy in Common (TIC)

This is the most popular arrangement for friends buying together. Under a Tenancy in Common, you do not have to own the property ⁵⁰⁄₅₀. If you contribute more to the down payment, you can structure the ownership as ⁶⁰⁄₄₀ or ⁷⁰⁄₃₀.

Crucially, a TIC does not include the right of survivorship. If you pass away, your share of the house goes to your designated heirs (like your parents or siblings), not to your roommate.

Joint Tenancy

Joint tenancy requires all owners to hold equal shares of the property. If two friends buy a house, they each own 50 percent. This structure includes the right of survivorship. If one owner passes away, their share automatically transfers to the surviving owner. This is very common for married couples but can be risky for friends unless you specifically want them to inherit your share.

Forming an LLC

Some co-buyers choose to create a Limited Liability Company (LLC) to purchase the home. The LLC owns the property, and the friends own shares of the LLC. This provides excellent liability protection and makes it easier to transfer shares if someone wants to sell. However, securing a residential mortgage under an LLC is much harder and often comes with higher commercial interest rates.

Drafting the Co-Ownership Agreement

You absolutely must hire a real estate attorney to draft a legally binding co-ownership agreement. Do not rely on verbal promises or a basic template from LegalZoom. Your written contract must address the following scenarios:

The Exit Strategy: What happens if one person wants to move out or sell their share in three years? The agreement should outline a buyout process, including how you will determine the home’s fair market value.
Default Rules: If your roommate loses their job and cannot pay their half of the mortgage, what are the consequences? The contract needs a grace period and a protocol for the paying roommate to cover the costs in exchange for a larger equity share.
Maintenance Contributions: Roofs leak and water heaters break. Agree to set aside 1 to 2 percent of the home’s purchase price annually into a joint repair fund.
House Rules: While not strictly financial, writing down agreements about romantic partners moving in or adopting pets can save you from massive legal headaches later.

Handling Taxes as Co-Buyers

When tax season arrives, you will need to coordinate. The IRS issues one Form 1098 detailing the mortgage interest paid for the year. Since only one person usually receives this form in the mail, you must decide how to split the mortgage interest deduction on your tax returns. The IRS allows you to divide the deduction based on how much interest each person actually paid, but both parties must keep meticulous bank records to prove it.

Frequently Asked Questions

Yes, but it depends on your title structure and co-ownership agreement. Under a Tenancy in Common, you can technically sell your share to a third party. In reality, most co-ownership agreements include a “right of first refusal,” meaning you must offer your share to your roommate before selling it to a stranger.

What happens if my friend defaults on the mortgage?

When you sign a joint mortgage, you are agreeing to “joint and several liability.” This means the bank views you as fully responsible for the entire loan amount, not just your half. If your friend stops paying, the lender expects you to pay the full monthly bill. If you do not, both of your credit scores will crash, and the bank will foreclose on the home.

Do we need a lawyer to co-buy a house?

While the law does not strictly require you to hire a lawyer to buy a house, skipping this step when buying with a friend is incredibly dangerous. A real estate attorney will draft your co-ownership agreement and ensure the title is recorded correctly with your local county clerk. Expect to pay a local attorney between $500 and $1,500 for this service.