Should you buy a house alone or with your partner/friend/family member?

Many people dream of owning a home, whether it's to live independently, to access the benefits of leveraged debt, or simply to achieve a personal milestone. But is it feasible to purchase a house on your own in 2024? In this guide, we explore how you can buy a home solo and what to consider when making this decision, and discuss the implications of FHA and conventional loans for first-time buyers in the US.

Can You Buy a House on Your Own?

Buying a house as a single individual is absolutely possible, though it comes with its own set of challenges. When purchasing a home on your own, you need to manage not only the entire down payment, but also mortgage payments based on a single income rather than two.

Mortgage lenders generally offer loans that are 4 to 4.5 times your annual income. With rising property prices, this can limit your purchasing power. However, with strategic planning and professional advice, buying a home alone can be an achievable goal.

Is It Harder to Get a Mortgage Alone?

Yes, securing a mortgage solo can be more challenging compared to applying with a partner. Lenders assess affordability based on your income, existing debts, and regular expenses. If your financial situation doesn't meet their criteria, your application might be denied.

Lenders often use 'income multiples' to determine how much you can borrow. For instance, if you earn $50,000 and the lender uses a multiple of 4, you might qualify for a mortgage up to $200,000. Applying with a partner could potentially double this amount, increasing your home-buying options.

FHA Loans vs. Conventional Loans: What You Need to Know

FHA Loans: These are government-backed loans designed to help first-time buyers with lower credit scores and smaller down payments. FHA loans typically require a minimum down payment of 3.5% of the home’s purchase price, making them a viable option for solo buyers who may not have a large savings cushion.

Conventional Loans: Unlike FHA loans, conventional loans are not government-insured and often require a higher credit score and down payment. They generally require a down payment of at least 5% to 20%. Conventional loans might offer better terms for those with strong credit profiles and substantial down payments.

How to Buy a House as a Single Person

With Family or Friend Support

1. Guarantor Mortgage: A family member or friend can act as a guarantor, using their property equity to support your mortgage application. This can help you secure a loan even if your deposit isn’t sufficient.
2. Income Boost: Adding a co-borrower’s income (like a family member) to your mortgage application can increase your borrowing capacity. While they’ll be on the mortgage, they won't have ownership of the property.

Without Family Support

1. Equity Loans: An equity loan can supplement your down payment, allowing you to increase your home-buying budget. This loan is secured against the property, and the provider will have a stake in it.
2. Shared Ownership: This option lets you buy a percentage of a home and rent the remaining portion. Over time, you can purchase additional shares, eventually owning the home outright.

Should You Buy a House Alone or With a Partner?

Purchasing a home alone offers personal freedom and the ability to make all decisions regarding the property. However, it can be financially demanding. Buying with a partner can ease the financial burden and provide shared responsibility, but it’s a significant commitment and should be considered carefully.

If you’re single and ready to buy a home, don’t let the idea of waiting for a partner delay your plans. If you can afford it or have family support, solo homeownership could be the right choice for you.

Pros of Buying a House with a Partner

1. Shared Financial Responsibility: Splitting the cost of a home means you each contribute to the mortgage, property taxes, and maintenance, which can make homeownership more affordable than if you were buying alone.
2. Increased Purchasing Power: Combined incomes and credit scores can enable you to afford a more expensive or desirable home than you might be able to on your own.
3. Shared Equity Growth: As you pay down the mortgage and the home potentially increases in value, both partners build equity together, which can be a financial asset.
4. Emotional and Practical Support: Navigating the home buying process can be complex and stressful. Having a partner to share the decision-making and responsibilities can make the experience smoother and more manageable.
5. Potential Tax Benefits: You may benefit from tax deductions related to mortgage interest and property taxes, which can be more advantageous when shared.

Cons of Buying a House with a Partner

1. Financial Risk: If one partner experiences financial difficulties or defaults on their share of the mortgage, it can affect both parties and their credit scores.
2. Legal and Ownership Complications: Disagreements or changes in the relationship status can lead to complex legal and financial issues, such as how to divide assets or handle the mortgage if the relationship ends.
3. Different Financial Priorities: Partners might have different financial goals or spending habits, which can lead to conflicts about home maintenance, renovations, or other expenses.
4. Shared Liability: Both partners are responsible for the mortgage and other obligations. If one partner doesn’t uphold their end, it can impact the other partner’s financial stability and credit.
5. Impact on Relationship Dynamics: Buying a home together can put additional strain on a relationship, especially if there are disagreements about the home’s purchase or upkeep. It’s important to ensure that you both have aligned goals and communication strategies.
6. Complicated Selling or Moving: If you decide to sell the home or move, coordinating the process and splitting proceeds can be challenging, particularly if there are disagreements about the sale.

Can You Buy a House with Friends or Siblings?

Absolutely. Purchasing a home with friends or siblings can be done through a joint mortgage, where each party has equal rights and responsibilities. Alternatively, a "tenants in common" mortgage allows for different ownership shares based on each person's contribution to the down payment and mortgage payments.

Considerations for Tenants In Common Structures

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When securing a conventional loan under a tenants in common (TIC) structure, there are several key factors to consider to ensure a smooth financing process. First, it’s important to understand that conventional loans, which are not backed by government agencies, often come with stricter credit and income requirements. Each co-owner in a TIC arrangement must individually qualify for the loan, as lenders will assess their creditworthiness and financial stability. This means that all parties involved need to have strong credit scores and financial profiles to secure favorable loan terms.

Another crucial aspect to consider is the loan agreement and how it aligns with the TIC structure. Since tenants in common can hold unequal shares and manage their interests independently, it's essential to clearly outline each owner’s responsibilities and share of the mortgage payments in the loan agreement. This clarity will help prevent potential disputes and ensure that the mortgage is managed smoothly. Lenders may require a detailed agreement that specifies each party's contribution and rights, so working with a legal expert to draft or review this document can be beneficial.

Lastly, be mindful of the potential impact on your long-term financial goals. With a TIC structure, each owner has the flexibility to sell or transfer their share independently, but this can also affect the overall loan dynamics. If one co-owner decides to sell their share, it could influence the remaining owners' financial obligations and the loan’s terms. Therefore, it’s wise to discuss the implications of such scenarios with your lender and ensure that your loan agreement accommodates these possibilities

Conclusion

Buying a house on your own, while challenging, is entirely feasible with the right planning and resources. FHA loans can be a great option for first-time buyers with limited savings, while conventional loans might be suitable for those with stronger financial profiles.

If you’re unsure about your buying power or need help navigating the mortgage landscape, consult with a mortgage broker or financial advisor. They can provide personalized guidance and help you explore all available options to make homeownership a reality.

For a tailored assessment and to explore various buying schemes, use our mortgage calculator or reach out to a professional mortgage broker. Don’t let the complexities of the process deter you—your dream home is within reach!

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