I’ve written about using a guarantor as one cunning and creative tactic to work within the new lending rules as well as the possibility of Welcome Home Loans and non-bank funding.

buy a first house with friends

But there’s one other option that I’ve not seen discussed anywhere — buying a first house, with friends.

I wish this idea had been put to me when I started my career as I was living in a flat with 3 other people who were all gainfully employed and looking to get ahead. We could have pooled our meagre resources and after a few years sold up and walked away with a really good jump up the property ladder. Hindsight…

The lending conditions then were similar to what they are now in the sense that a 20% deposit would have been required. The only difference is that house prices were much lower back then and we could have purchased that crappy Herne Bay dunger we rented.

What makes buying a house with friends a more likely solution nowadays is the evil combination of a house price that starts at $500,000 and the need for 20% deposit. That’s right, $100,000 cash deposit and while I’ve seen some people in that fortunate situation they’re few and far between!

And yes, you can talk about how people should be looking at cheaper houses all you like but the reality is that the deposit hurdle in Auckland is pretty chunky even if all you’re after is a unit in Manurewa.

Buying a first house with friends is a realistic option.

Typically it’s a situation where two couples who might already be flatting together pool their resources. Four lots of Kiwisaver, four lots of savings and four incomes combined adds up to quite a lot of borrowing grunt. Not to mention the wonderful situation where rent is turned into a mortgage.

It works best where everyone’s contribution is about the same but this is rarely the case. Incomes are often different as are the amount of funds everyone is able to put in. Which is why an agreement between all needs to be struck and written down setting out the what if scenarios. It need not be complicated or long winded and often the best agreements are the simplest but either way it must address at least 3 key questions — what happens if one of the group fails to pay their share of the mortgage (or rates, insurance and the like); who gets what when the property is sold and; a method for resolving any disputes.

I’ve also found it’s useful to have a time limit on the arrangement of somewhere between 2 and 5 years. There’s no need to go your separate ways at that point but it does force you to evaluate where things are at and ask yourself if you want to continue.

Naturally, getting a mortgage for this kind of scenario can be tricky simply because you’re dealing with more people than normal all of whom bring different things to the table. Still, it can be done.

Could be an option to consider over the holiday break?

 

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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