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3. Problems of credit rating
If you have your friend as a cosigner, you both will have your names in the mortgage. So, both of you have the responsibility to make the monthly payments on time and in full. If anyhow you both fail to make those payments, the lender will send reports to the credit agencies for non-payment or foreclosure. The situation remains the same even if you pay your share of the mortgage payment every month to the lender. Your friend’s negligence can cost you a big patch on your credit score.
4. Issues regarding other loans
If you and your friend share the monthly mortgage payment between yourselves in a ratio of 1:1, you both are individually responsible for the entire monthly payments every month, according to the other lenders. This outstanding debt amount can affect your DTI (debt-to-income) ratio and make it high enough. Too much difference in your debts and income can make it difficult for you to get an approval for other loans. Married couples normally experience this issue while applying for joint mortgage or loans.
5. Conflicts regarding responsibilities
The friendship between you and your co-signer friend can be easily judged if there are any conflicts over the responsibilities regarding – payment of utilities or bearing the cost of the property. To avoid this situation, you can include some major points in your written agreement. The points will be on sharing responsibilities about paying each cost associated with the property. The costs may include repairs and maintenance, utility bills, legal expenses, taxes etc. It must also include the way you claim your mortgage interest deduction.
Conclusion
Buying a house with your friend as a co-signer has its own benefits. You can easily qualify for the mortgage; you can share all related monthly expenses, which may include costs like utility bills, maintenance and repair costs, mortgage installments and, most importantly, as you pay each month - you’ll build home equity on that property. If you choose to rent, then this option is not for you. So, it’s clear that buying an investment property has several challenges, and it’ll be a wise decision if you don’t jump to a conclusion before time.
Do your research before making any decision. Don’t hesitate to talk with your friend about all the aspects of making the purchase. You both have to make sure that you have that sufficient earning capacity, to meet the monthly expenses required for the investment. To avoid future problems and to maintain the legal aspect of the investment, you need to hire an attorney. The attorney will enclose all details in the legal agreement regarding - responsibilities, share of income, and division of partnership if any of the partners want to separate or died.