Best way to help a friend buy a home?

Question

Hello, I qualified for a mortgage at the high end of my affordability, and closing costs may be a problem.

My friend has offered to take on 50% of the home ownership for 1/3 of the monthly costs, as well as 1/3 of the closing costs. I plan to also have a renter/housemate, at least at first. He wants to co-own the home, but make me a renter, where I pay 2/3 of the rent (or 1/3 if there is a renter), and he pays 1/3. I would be living in the home, whereas my friend would continue to live in his home in another city.

I would love to get opinions on: 1. Whether this sounds like a fair arrangement, 2. What are other options I can suggest, 3. Advantages and disadvantage of making the home a 'rental'.

Thank you in advance for advice!

Nathan Gesner · Answer

Welcome to the BiggerPockets forums!

Why would you offer 50% ownership when they only invested 33%? I'm also confused about the roommate situation.

If they invest 33%, they get 33% ownership.

Bryce Jamison · Answer

The plan you laid out isn't what I'd do in you position. Real estate partnerships can fail for many reasons. You each could have different opinions on when to sell, when to make repairs and who to use to do them, or what to charge rent. One of you could loose your job, go through a divorce, get addicted to drugs or gambling, or get in a debilitating accident. I'm just scratching the surface. Do you both have a plan for how to handle each of these scenarios and the dozens of others I didn't mention? What you're describing seems to be a friend trying to help you out, not a "traditionally" business partnership which leads me to think it's even more prone to failure.

Do you need to buy ASAP? If I were you I'd either target homes I could afford by myself, or save up more money until I could afford the home I want by myself.

If you do decide to go through with this please, please, please get a lawyer to draw up a very detailed contract about what happens in any number of scenarios that can potentially happen between you two.

Do you need to buy ASAP? If I were you I'd either target homes I could afford by myself, or save up more money until I could afford the home I want by myself.

If you do decide to go through with this please, please, please get a lawyer to draw up a very detailed contract about what happens in any number of scenarios that can potentially happen between you two.

Account Closed · Answer

However, if the friend pays half of down payment and closing costs, is there any scenario where you could envision me fairly paying 2/3 of the monthly payments because I live in the home and the friend does not?

Account Closed · Answer

Hello, and thank you for your replies. I should clarify.

Yes, we would plan to have a legal document written up for the contract. I do not need to buy ASAP, however there is a home shortage where I live, and this particular neighborhood is very close to my work; I have been living in the neighborhood for 3 years renting. There have not been homes built in the neighborhood for several years, so this is a rare opportunity to purchase in the exact neighborhood I want to remain.

I plan to have a roommate whether I include the friend in the transaction or not, because I cannot afford alone. The arrangement did not make sense to me, either, so thank you!

Melissa Hartvigsen · Answer

Hi,

Many others already commented on why you shouldn't partner.

Here are some other options to consider:

1. If there is not a lot of competition from other buyers, have your realtor negotiate for the seller to pay your closings costs.

2. Use a down payment assistance or closing cost program. There is no such thing as FREE MONEY, and there is usually a fee wrapped into the loan for these. In Oregon we have a couple of great options FLEX 5% (a 2nd @ 0% loan that may or may not be forgivable depending on your income), and the Oregon Bond Cash Advantage 3% . Nationally there is one called Empowered, it is a grant up to 3.5% which does not need to be paid back. * Not all loan officers are created equal, and may do not offer these
programs. If you would like recommendations for someone who can walk you through you options, send me a DM.

3. Look at 0% down loan options or combining a 2nd loan with your first.

4. Gift money from family. Yes, this is allowed for your loan as long as the person giving the money will sign a letter for your lender confirming they didn't loan you the money.Good luck!Melissa

Best way to help a friend buy a home?

Best way to help a friend buy a home?

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