The Power of Two
The first and most important step is to choose your partner wisely. What you want is a close friend or a family member. The two of you need to have a very strong bond—of friendship and respect. We all have pals who are drowning in credit-card debt. As much as you may love them, you cannot afford to buy a house with any of them.
To make sure you and your potential mortgage mate are a good financial fit, you'll need to share some personal information. You may know her shoe size, but I bet you don't know her FICO score. FICO (which stands for Fair Isaac Corporation, a firm that calculates financial scores) is a snapshot of how good a credit risk you are. You actually have three separate FICO scores from three different credit bureaus—Equifax, Experian, and TransUnion. Lenders use these scores to determine what type of mortgage to give you. If your score is 700 or higher, you'll get a low-interest-rate mortgage. With a number below 700, you'll be stuck paying a higher interest rate. Lenders will use your middle score, or they'll average all your scores to determine the interest rate they'll be willing to offer you.
Each of you should buy at least one of your own scores ($14.95 at myfico.com) and compare notes. If you and she each have a score above 700, I'd say that aspect of the deal is a go. If one or both of you has a number lower than that, it's best to delay your home shopping for a few months while you work on raising your score by paying all your bills on time and getting your total credit-card balance as low as possible. If your friend's FICO score is closer to 650, however, the two of you need to have a serious talk. If it turns out that she's a financial flake, then you'll want to find a new housing partner.
The typical arrangement is known as Tenants-in-Common (TIC), in which you each own a specific share of the property. A 50-50 split is the norm, but if one of you is going to contribute more money, then you can adjust the percentages.
TIC is not always the best choice, though. I recommend consulting an attorney who has solid experience in estate planning—because when you make such a large investment, it's smart to consider the ultimate worst-case scenario: What if one of you were to die during your partnership? This is where a TIC arrangement can get sticky. If your housemate dies, her share of the house will go to whomever she named as heir in her will. So, for instance, you could find yourself suddenly co-owning a home with your former housemate's nephew.
Consider another ownership option: Joint Tenancy with Right of Survivorship. In this setup, you both own the home; if one of you dies, the survivor takes control of the house until she chooses to sell it.
When ownership legalities are squared away, it's time to confront the really tough issues—the ground rules for living together once you own, and the process of selling when one or both of you decides to move on. Discuss your expectations and hash out an agreement in writing before you have a mortgage hanging over the relationship.
Will anyone else live with you? Spell out whether friends, lovers, or family members can move in, and if so, what they'll be expected to contribute to the mortgage payment and maintenance expenses. If you're considering buying a vacation getaway, this conversation is extremely important. If you picture your beach cottage as a quiet refuge and your friend has a more-the-merrier party attitude, neither of you will be happy.
When it comes to housekeeping chores and basic home maintenance, you don't want to be the Odd Couple, constantly annoyed with each other's habits. If your Oscar-like pal is perfectly content to pay for a housekeeper, will that satisfy your inner Felix? Will it drive you crazy when she lets the laundry pile up? Whether you'd rather do-it-yourself or hire a maid, housekeeping is a subject you should discuss before you buy.
This one isn't a deal breaker, but it's still important. You and your friend can go to town decorating your respective bedrooms, but what about the communal living areas—especially if you don't exactly share a decorating aesthetic? Will you be okay with your retro lamp on her period side table? And how will you meld your tastes (and budgets) if you buy furniture together? The same applies to renovation projects. If you're assuming the priority is to tear out the hideous shag carpet in the living room and replace it with a sleek wood floor, will you flip if your housemate insists on redoing the outdated kitchen first?
You each need to guarantee that you'll always be prepared to cover your share of the bills. The best way to do this is to create a joint checking account for all housing costs. Every month, two weeks before the bills are due, you and your housemate must deposit your respective shares into the account. I suggest setting up direct deposit from your personal savings or checking accounts into the joint account—that way, neither of you can claim forgetfulness or a "bad" month. Then, on an appointed day, sit down together and pay the bills online.
Consider some crucial what-ifs: What if you quit your job? What if your friend gets laid off? What if the roof springs a really expensive leak? Do you each have ample emergency cash funds to cover your share of the housing costs?
Ideally, your savings should cover eight months of living expenses.
Before you move in together, you need to know how you'll end your housing relationship. Let's say one of you decides to take a job across the country. Or the other meets the love of her life. Or there's a major falling-out. Be sure to ask your lawyer to draw up an agreement spelling out what will happen if one of you decides to move. Will you both sell and split the proceeds? Will the partner who's leaving allow the other a grace period to come up with the cash to buy her out? How many months' notice must be given?
This is a touchy topic—the reason you're buying together in the first place is because neither of you can afford to go it alone. What's the game plan for a split-up?
I think you get the idea. Doubling up can be a terrific way for you and a friend or relative to make the dream of owning a house a reality. By working out the potential problems before you buy, you can make sure it will be home, sweet home, for both of you.
More from Suze Orman
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