Sharing a Mortgage: Buying a Vacation Home with Friends
The idea of buying a vacation home with friends or relatives can be seductive. You can clearly
see the logic of doing so. You vacation together and you and your families get along famously.
But the leap from spending time together to entering into the financial arrangement of sharing a
mortgage requires serious discussion. There are numerous pluses and minuses when it comes to
buying vacation home with a friend or relative.
The Financial Arrangement of a Shared Mortgage: The Upside
Buying a vacation home is often the result of simple math: it is cheaper to own a home in the
place you love to vacation than it is to continue to rent one in your favorite location. But some of
the most desirable locations, destinations such as Caldera Springs or Sunriver in Central Oregon,
may be priced higher than a single payer mortgage borrower can comfortably consider. Adding
an additional payer can help alleviate that roadblock and put you into a better position to gain
entry into some amazing communities.
While the qualifications to obtain a mortgage remain the same, sharing the loan can make it more
affordable. Keep in mind, you will both be responsible for the loan, which will be based on an
average credit score, consideration of combined incomes, and of course, how the loan will
impact your current debt obligations.
Beyond the mortgage, arrangements need to be finalized. A shared mortgage in your favorite
vacation spot will save money but how much depends on pre-discussed percentages. Depending
on this arrangement, both parties are obligated to maintain the home. This arrangement should
also extend to the tax deductions that come with this arrangement.
The Financial Arrangement of a Shared Mortgage: The Downside
Perhaps like the adage of never lending money to a friend, sharing a loan with a friend can also
come with peril. Financial arrangements involving two personalities can expose not only
differences but weaknesses. This is a contractual partnership that should involve serious
considerations in advance. If that relationship breaks down, the options may be limited to selling
the house or refinancing the loan in your name alone. Selling in this situation may not garner the
best resale price. The refinancing option, in your name alone, may not be a viable option.
Another consideration is the evitable march of time. Financial situations change as unforeseen
expenses can create credit issues with either party. Because both names are on the mortgage, a
slide in creditworthiness of the other party will impact the credit score of both.
These types of loans make both parties fully responsible for the total mortgage. This may impact
your debt-to- income ratio, making it difficult to secure another loan, such as one for an
automobile. The lender will structure the loan based on the ability of both to pay, but other types
of loan application will not divide the responsibility for your payment, choosing instead to see
only your name on the mortgage.
How to Alleviate Problems
It is best to hire an attorney to draft a co-ownership agreement. You should probably create an
escrow account for insurance, repairs and improvements. If you plan on renting the home to
visitors, discuss the costs of marketing and management as well. It is also a good idea to
purchase a term life insurance policy on each other. Each of the listed suggestions adds to the
total cost of this arrangement and should be budgeted into the decision.
These arrangements can and do work for a vast majority of people who purchase a home
together. But the most successful homebuyers consider all of the potential upsides and
downsides, both personal and financial in advance.
How can we assist you today?
On behalf of The Jones Group @ Sunriver Realty
Nola Horton-Jones, Principal Broker/Realtor | ABR, C-RIS, e-PRO, GREEN, RSPS, CCIM Candidate
Bryce Jones, Broker/Realtor | ABR, CRS, e-PRO, GREEN, GRI, RSPS, SFR
Karen Marcy, Broker/Realtor
The Jones Group @ Sunriver Realty | 57057 Beaver Drive | Sunriver, OR 97707
Mobile: 541-420- 3725 | Mobile: 541-420- 4018 | Mobile: 503-327- 9611 | Fax: 541-593- 5123
Licensed in Oregon