Can I Share My Second Home Mortgage With a Friend?
Unless you are blessed with a large bank account or are living mortgage free on your first property it is likely that a second mortgage could stretch you financially.
Teaming up with a friend or relative could be the key to securing your dream property.
Mortgage lenders are typically stricter when it comes to offering second mortgages so it is important you and your future co-applicant are on the same wavelength when it comes to obtaining the mortgage.
These few questions should help you determine whether you can share a mortgage with a friend.
1) What Do You Know About Your Friend’s Finances?
- A) They are in a similar position to me financially and have paid off their first mortgage
- B) We are on a similar wage and have roughly the same amount of equity in our home
- C) This is my friend’s first mortgage and they are not as financially secure
2) How Will You Divide The Property?
- A) We plan to split the property equally
- B) I plan to take a larger share of the property but only by 10%
- C) I will take on the bulk of the mortgage
3) What Deposit Do You Both Have?
- A) We both have around 15% of the property’s value, so in total a 30% deposit
- B) I have a 10% deposit, they have a 5%
- C) We both only have a 5% deposit
4) What Is The Purpose of Your Home?
- A) An investment property
- B) A holiday home, divided between us
- C) My friend will live in the property and I will holiday there for a period
5) What Are Your Main Reasons For Buying With The Friend?
- A) Lack of finances
- B) Don’t want all the risk myself
- C) They have asked me to buy for an investment
Mostly A – Sharing With A Friend Could Be The AnswerIt sounds like it could be a meeting of two minds between you and your friend. There is always an added risk involved when sharing a mortgage with someone because you do not have full control yourself. Buying a second home with a friend for investment purposes makes more sense than buying it to live in. You will be able to get a joint mortgage for a second property to rent out but you will need to put down a large deposit.
Around 30% should see you through. You will also both have to prove that you can afford the repayments on the second mortgage and that you have a substantial amount of equity in your first property. It is important if you are buying abroad that you fly out to the destination together and make sure you agree on every aspect of the property and what it will be used for. Buying together could test your friendship, but it could also be of mutual benefit.
Mostly B - Don’t Put All Your Eggs In One BasketYour circumstances seem a lot trickier than your average joint mortgage. If you are buying a holiday home and you both plan to use it you will have to set your boundaries before you sign any mortgage papers.
A mortgage lender will not want to know how you wish to divide your time in the property but they will want to know if one of you plans to take a larger share. You will both need to speak to solicitors and get it in writing who owns what and who will pay what deposit. If you plan to own more of the property you may also find you need to pay more towards the monthly mortgage costs and the lender will delve into your finances more than your friends.
Mostly C –You Could Be On Dangerous GroundYour fiend sounds like they are lacking in financial and home ownership experience. You will need to get a legal contract to say who owns what and you will have to be confident your friend can pay the mortgage or they could get you blacklisted if they miss a payment.
You will need at least a 10-20% deposit for a house in the UK but possibly a little less for buying abroad. If one of you plans to live in the property and not the other this could cause tension, so you need to make sure you are comfortable with the situation.
There is a reason why they say friendship and business don’t go together. Your friend might be a great colleague at work, fun to hang around with at the weekend and great with your kids, but this doesn’t necessarily mean they will be great in business. It’s important you weigh up all the pros and cons of sharing a property with your friend before you take the plunge.