Haven’t we all had these get rich quick schemes that we dreamed up with our friends? Build a business together, buy a house together, etc. The business idea probably has a good chance of working out, but investing in a house with friends isn’t a good idea. It’s easy to get lured into the option especially when they ask to invest in luxury flats in Chennai. Sharing the investment with a friendly face is certainly tempting, but here are the 5 problems you are likely to face when buying the house with a friend.
Entwined Credit Reports:
Since you have to cosign on the mortgage, both your credit histories will have an impact on the funding. Even if one of you has a bad report, you could end up with a hefty interest rate or expect a severe cut in the expected amount. Even a small change of 0.5% in the interest rate can make a big difference when translated into the actual amount.
Can’t opt out easily:
It’s not so easy to opt-out if you get into a disagreement. It’s not like you are renting together that you simply get to move out. You have entered into a legal, financially binding arrangement that has to last the full tenure. Both of you need to be consistent in the payments.
If one of you still wants to get out of the deal, you would have to sell the house or change the mortgage under one name. This is a long and complicated process, and one person might end up with an unexpected burden.
There is also the question of what happens to the property if one of the parties were to meet an early demise, does the property transfer to the surviving one, or will the property pass on to the legal heirs of both?
Risk in Credit Rating:
Both of you are fully responsible for making the loan payments on time. If a delay is caused by one of you, the financer will have to report both of you. This will cause a negative credit report for both of you, which could prove cumbersome in the long run. Even if you had paid your due on time, but the joint payment didn’t go through on time, both of you will get reported. Wouldn’t you want to avoid such a sticky situation?
Difficult to avail other loans:
Your friend and you are splitting the payments equally and each only needs to pay half of the amount every month. However, in the eyes of banks and other lenders, each of you is individually responsible for the full monthly installment. Your Debt-to-income ratio will appear higher, making it difficult to apply for other loans. In case of any emergency expenditure, this could prove as an obstacle.
Disagreement on shared responsibilities:
Sharing responsibilities is difficult even at the best of times and could be a factor that leads to misunderstanding in your friendship. There are so many additional costs and work involved in buying luxury flats in Chennai like maintenance, repairs, etc. which need to be discussed beforehand. Even if you are the closest of friends from childhood, make sure a proper legal agreement is drawn out outlining who is responsible for what, how to share the additional costs, and split the deductions. Besides, only one of you can claim the home loan interest deduction.
Sharing the cost and responsibilities brings down the burden on each individual. But it also comes with its risks and indecisiveness in long-term plans for the asset. Your friend and you both need to have equal income and expenditure to meet the loan payments. So it’s always better and wiser to not allow your investments to interfere in your relationships.
Whether on your own or with a friend, if you are up for investing in prime properties, Lifestyle housing has the best luxury apartments in Chennai. Our 4 BHK homes in Chennai are popular with both new and seasoned buyers as we guide you through the entire process of documentation and fund sourcing.