San Francisco, CA · Member since 2016 · 42 posts · 25 votes
Hi-
Let's say me and a friend want to buy a SFH to live in together instead of renting. I know the typical response is "NO GOD NO don't buy a property with a friend." :) Let's set aside the 'don't mix business with friendship' advice for now and focus on how we'd theoretically finance that purchase.
Does anyone know any way to fractionalize a mortgage? For instance, in the very ideal case, if the home is $300K, we each get a $150K mortgage? Or barring that possibility, a way to use financing while insulating our credit from each other so that if the worst happens, my friend disappears, and I can't cover her share, I'm not totally screwed?
I realize this question must come off as IMPOSSIBLY naive...! But here in San Francisco buildings (especially 2-units, but again let's pretend it's a SFH) are held by tenancy-in-common and people are given fractional TIC loans (typically 5 or 7/1 ARMs, .5-1% higher).
Palo Alto, CA · Member since 2017 · 226 posts · 95 votes
9y
@Tiffany Shan ... The lender wants to have the ability to sell the home if the mortgage isn't paid. The lender wants all "owners" to be on the mortgage so that they will have no problem using the property to cover a default.
The only way I could imagine not having both buyers applying for a joint mortgage would be if both of the buyers could borrow money from a different source, either equity on a different property or investment.
San Francisco, CA · Member since 2016 · 42 posts · 25 votes
9y
@Josh C. knows better than I) that literally can and probably has happened (though I guess it's not reeeeally "half a house" so much as half a lot).
Is the inability to use the property to cover a default the only issue? If there was actually a sufficiently liquid market of halves of homes, would this be ok?
Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
9y
Typically LTV is over 40% and the property is the collateral of the loan so I don't think you'd ever been "insulated" from your friend.
There are lenders on here who can answer for sure, but I don't see how the mechanics would work without you both responsible for the whole thing.
Maybe one of you get a loan for the whole thing and the write an agreement that you'll both help pay it and split profits. Like an operating agreement.
Good luck
Lender · Western Springs, IL · Member since 2015 · 472 posts · 245 votes
9y
@Tiffany Shan I cannot imagine a lender would ever do this. But I guess I could be wrong. At the end of the day, your promise to pay your loan is, maybe not worthless, but close to it. If you lose your job tomorrow and just can't take care of it, what recourse does the bank have?
Also any barrier to resale/marketability is a huge no no for a lender. You would never want a barrier like that present when lending on a piece of collateral that is ultimately the thing of value in the whole process.
You asked above - is the inability for the piece of collateral to cover the default that big of a deal. And I would answer you - yes - it is the ultimate thing that matters.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
9y
zero chance of getting a fractional loan on a SFH
Brilliant idea: looking in frisco, right? why don't you guys just buy a duplex? Then expedite condo convert it, and then you can each have your own condo loan. Easy peasy!