Buying a Home With Your Friend: What Are the Legal Steps Involved?
The legal processes that surround home ownership seem to favour legally married couples or individual investors. But what happens if you and your friend wish to buy a home together?
It makes a lot of sense to invest in a home with your friend rather than being stuck in the renting cycle. But before you proceed, there are important legal steps you will need to take that involve the transfer of property from the seller to you, the buyer.
1. Establishing how you will share finances
As friends, you don't have a legal framework that defines your friendship the way a marriage is defined under the law. Therefore, you should visit a conveyancing solicitor to develop a legal contract that will guide your home ownership moving forward.
The contract can stipulate how you will divide up mortgage payments, how taxes will be handled and distributed, and what will happen if you decide to sell the home in the future. This legal framework will help you resolve any challenges that may arise moving forward.
2. Applying for a mortgage
You will most likely need to apply for a mortgage to finance your desired home. The mortgage application will include both you and your friend's financial status. Therefore, make sure you're both transparent about your finances.
Be open about your monthly income, outstanding debt, and credit score. All these factors will determine how much you can borrow, the length of the mortgage and your interest rate.
3. Tax requirements
When buying or selling a property, there are important tax implications involved. As a buyer, you may be responsible for paying title tax, land taxes, stamp duty taxes, and other property taxes with your new home purchase.
Determine how these taxes will be split between you and your friend. Remember that you may be eligible for a tax break at the end of the tax year for some of these costs. To determine how such benefits will be split amongst you two, consult a conveyancer to work out the details.
4. Determine how to negotiate with the seller
Some sellers may feel wary about selling their home to you and your friend. They may feel as if the process will be more complicated or likely to result in disagreement.
However, you can negotiate with hesitant sellers by showing them that you've taken all necessary legal steps to facilitate a smooth transaction. You can choose to work with a real estate agent when negotiating the sale, and enlist a title company to ensure that all transaction documents are valid.
Contact a residential conveyancing company for more information.