In many parts of the country, rapidly-rising rental and housing prices have led would-be homeowners to take on roommates as a way to curb their housing expenses. If you're tired of paying rent toward a property you'll never own, you may be considering purchasing. But if you're not able to secure the necessary down payment for a home on your own, is going into this transaction with roommate friends or relatives an option? Read on for some of the factors you'll want to consider when pursuing a mortgage with others.
Financing
Obtaining a mortgage with a spouse or domestic partner is a fairly simple process, but applying for joint credit with someone with whom you have no other legal or familial ties can sometimes be more complex. Banks may be reluctant to extend credit to you and your roommate(s) without some showing of financial security, like a bank account or 401(k) statement with enough funds to cover the mortgage for a few months.
You may be able to qualify for financing by agreeing to be "jointly and severally liable" for the underlying loan; this means that if your roommate moves out or stops paying, you'll be 100% responsible for the balance of the loan, even if your roommate still has an ownership stake in the home. While this type of arrangement can be workable for many, it does carry a bit more risk for you as a borrower.
Liability
Another issue you'll want to consider is liability. If you and your roommate become co-owners of a house together, you'll both be responsible for injuries, accidents, and other incidents that take place in your home or on your property. You may find yourself facing a personal injury lawsuit if your roommate's guest is injured, and because these lawsuits often search for the "deepest pockets," you could wind up paying despite any lack of responsibility.
This can mean you may be financially liable for overserving a guest who is later involved in a drunken car accident, even if you weren't even in the house at the time the guest was being served.
Fortunately, having some strict ground rules and an umbrella insurance policy can go a long way toward reducing the liability risks of property ownership. You may want to visit a mortgage broker to get a better idea of your financing options to determine whether this is a viable option for you and your roommate(s) or for more information on mortgage loans.
