Particularly as we enter the stretch of summer where everyone starts fantasizing about snapping up a summer home, it can look pretty tempting to gather up your closest crew of friends to buy a house together. But—and this won't come as a huge surprise to anyone who's ever lived with roommates of any kind—taking out a mortgage as a group can be a pretty tricky business, as the New York Times wrote over the weekend.
"From a personal finance nerd's point of view, it's pretty dangerous," as MoneyUnder30.com editor and publisher David Weliver told the paper. That doesn't mean it can't be done, just that you need to go in with eyes wide open—and a whole lot of clearly spelled out paperwork.
Keep in mind that any mortgage lender will consider the lowest credit score in the group as the baseline for your application (a chain is only as strong as its weakest link, etc.), and that if one buyer ultimately stops paying, everyone's credit will suffer, not just the delinquent payee. To that end, know that you're legally considered responsible for payments on the entire home—not just your portion—which means, among other things, that if you're applying for financing for a second home, you'll have the full weight of your shared house (and its attendant debt) working against you.
As we've written previously, it's also important to spell out ahead of time — and in writing — details like who has access to outdoor space, how the cost of things like bills and repairs will be divvied up, and what will happen if one person decides to jump ship. The Times also recommends structuring your ownership as "tenants in common" — as opposed to the more common "joint tenancy" setup used by married couples — meaning that in the event of a co-owner's death, their share in the property will pass to their estate, as opposed to automatically passing back to the surviving owner (or owners). (The least complex option of them all: having one person own the house outright, and the rest of the friends coming on as renters, if that's plausible.)
Not exactly fun to think about the worst case scenario when conjuring up all your dreams of a shared brownstone or bungalow, but still better than getting stuck with the bill for an entire house because your friends flaked, no?