Beyond Splitting Rent: 5 Reasons Why Co-Buying a Home is a Smarter Financial Move (and How to Do It Right)

You’ve been doing all the right things. You’ve saved for years, cut back on dinners out, and skipped that big vacation. Still, a sense of dread creeps in when you look at home prices. The payment on a single income feels impossible. You’re not alone. The dream of homeownership, once a solo mission, is now a team sport.

It's a rising trend. More people are teaming up to buy homes, and not just with a spouse or partner. Friends, siblings, and other relatives are joining forces to make a down payment and share the load.

Zillow’s 2024 buyer survey shows that 63% of buyers purchased a home with at least one other person. Even more interesting, 7% bought with a friend, and 9% bought with a relative. Industry data backs this up. Freddie Mac reports a rise in co-borrowing, especially among first-time homebuyers who get help from family. The National Association of Realtors also notes an increase in unmarried buyers.

This isn't just about splitting a mortgage. Co-buying is a strategic partnership. By combining resources, you can lower risk and open doors that were previously shut. If you set clear rules, it can be a steady path to building wealth.

This post will walk you through five key financial reasons why co-buying can work and offer one powerful extra move that can give you a significant advantage. No fluff, just clear steps and simple examples.

Reason 1: A Bigger Down Payment Means Better Options and Lower Risk

For many first-time buyers, saving for the down payment and closing costs is the biggest hurdle. The numbers can feel overwhelming. But when you pool your savings with a co-buyer, the game changes.

A larger down payment offers immediate benefits. For a conventional loan, if you put down at least 20%, you can skip private mortgage insurance (PMI), a monthly fee that adds to your costs. The Consumer Financial Protection Bureau (CFPB) provides a great explanation of PMI here.

A larger down payment also lowers the loan-to-value (LTV) ratio, which is the loan amount divided by the home's value. A lower LTV means less risk for the lender, which can lead to a better interest rate. The CFPB explains how factors like your credit score and down payment affect your rate here. You can even use their rate explorer here to see how your numbers might affect your rate.

The result is simple: a stronger application, more loan options, and a better chance to compete for homes you really want. Plus, you start with a smaller loan balance, giving you more flexibility if your income changes down the road.

Your first shared rule: Create a joint reserve account before you even start shopping. Aim for at least three to six months of total housing costs (mortgage, taxes, insurance, and utilities). This fund will cover unexpected repairs or a short gap in income, preventing small surprises from turning into big fights.

Reason 2: The Right Loan Structure Is Everything

Buying a home on a single income runs into a major roadblock: the debt-to-income (DTI) ratio. Lenders compare your total monthly debts to your gross monthly income. This ratio determines how much you can borrow, and different loan types have different caps. The CFPB explains DTI here.

Adding a co-applicant can significantly improve this ratio by combining two incomes, which can open up more loan choices. However, there’s a catch. Lenders use risk-based pricing, and your credit scores and debts affect the rate and terms. The CFPB has a great overview of this here.

Most lenders follow rules set by agencies like Fannie Mae when evaluating credit scores for pricing. If there are multiple borrowers, the lender will use the lowest representative score among all applicants for pricing and eligibility. This means if one person has a lower score, it can affect the interest rate for everyone.

It’s also important to understand the different roles of co-borrowers and co-signers.

• A co-borrower signs the note and shares full liability for the loan.

• A co-signer also takes on liability but may not live in the home.

• A non-occupant borrower is someone who helps you qualify but doesn’t live on the property.

Roles and rules vary depending on the loan product and occupancy type. You can read Fannie Mae's guidance for non-occupant borrowers here.

Your next step: Before you apply, run some “what-if” scenarios together. Use a tool like the CFPB’s rate explorer to see how combining your scores, debts, and incomes could impact the interest rate and monthly payment. This helps you understand the true financial impact and ensures you’re both on the same page.

Reason 3: Smart Structure for Equity Growth and Financial Safety

Rent is a pure expense every payment goes out the door. A mortgage works differently. Each monthly payment is split between interest and principal. The principal portion you pay becomes equity you own. The CFPB explains how this works here.

Most home loans use amortization, which means the amount you owe decreases with each payment. Early on, a larger portion of your payment goes to interest, while later payments put more toward principal.

When two people share the mortgage payment, no one person carries the full load. This makes it easier to manage and gives you more room to make a little extra principal payment when you can. Sending a few extra dollars to the principal each month can significantly cut down on the total interest paid and shorten the loan term. You can see the effect of this with Fannie Mae’s calculator.

Think about your first five years of ownership. Each month, you chip away at the balance. Even if home prices stay flat, you gain equity through principal paydown. If prices rise, your equity grows even faster. If prices dip, the principal you’ve paid in acts as a cushion to help you ride out a soft market.

You can also boost your equity growth by using unused space. Renting out a room or a legally permitted accessory dwelling unit (ADU) can provide extra income. You can use this money to make extra principal payments, accelerating your path to ownership without taking on risky debt.

Reason 4: Shared Costs, Shared Security

Owning a home costs more than just the mortgage. Property taxes, insurance, and utilities are constant expenses. Plus, you need to budget for routine maintenance and unexpected repairs like a leaky roof or a broken HVAC system.

With a co-buying partnership, you can make these costs manageable. Split the regular bills evenly and contribute to a shared reserve account each month. Keep the balance visible to both of you and use it only for the house.

A simple example: Let's use some round numbers to show the idea.

• Principal, Interest, Taxes, and Insurance (PITI): $4,200/month

• Utilities: $300/month

• Maintenance reserve: $150/month

• Total monthly housing cost: $4,650

Split fifty-fifty, each person pays $2,325 a month.

Now, imagine a surprise. The water heater breaks and the bill is $900. You pay it from the reserve. The balance drops, but you both keep making your normal monthly deposits. No one has to write a sudden, extra check, and no one keeps a mental tally of favors.

This works for bigger jobs, too. If a roof repair costs $8,000, the reserve covers part of it. You split the remaining cost and then rebuild the reserve over the next few months. This keeps costs predictable and the partnership calm.

Reason 5: Protect the Partnership with a Solid Agreement

Money fights can ruin a great plan. Life happens a job change, a health issue, or a new partner. A co-ownership agreement acts as a safety net, protecting both the people and the property when life gets messy.

Put the deal in writing before you shop. A co-ownership agreement should cover:

• Ownership shares and initial contributions.

• Who lives in which space.

• Rules for pets, guests, and short-term rentals.

• How bills and the reserve are funded.

• Who decides on repairs versus upgrades.

• What happens if one person wants to move out or can't pay.

Nolo has a clear guide on what to include in a co-ownership agreement here.

You'll also need to decide how to hold title. The most common options are:

• Tenants in Common: This is flexible. Shares can be equal or unequal, and if one owner dies, their share goes to their estate or whomever is named in their will. There is no right of survivorship. Learn more here.

• Joint Tenancy: This usually includes a right of survivorship. If one owner dies, their share automatically goes to the other owner, bypassing probate. This can be simple for some pairs but might not be the right choice if you want your share to pass to someone else. Learn more here.

• Limited Liability Company (LLC): Some pairs use an LLC to hold title. This can offer liability protection and a clear way to split profits or costs. However, it adds setup steps and ongoing filings.

Plan your exit before you buy. This part is so important it deserves its own section.

The Exit Plan: A Partner's Most Important Safety Net

Do this part first. Breakups happen. Jobs change. Markets shift. An exit plan keeps the friendship and the asset intact when life throws a curveball.

Write the plan into your co-ownership agreement. Keep the language plain and sign it together.

Start with triggers the events that will start a buyout or a sale. This could be a job relocation, a new partner, a long period of missed payments, or simply one owner wanting to cash out. When a trigger happens, the clock starts.

Next, pick a method for setting the value. A licensed appraiser is simple and clear. Another option is to get opinions from two real estate agents and average the numbers. Decide who pays for the valuation and set a short window to dispute any clear errors. After that, the number stands.

Your plan should also explain how a buyout will be funded. Can the buyer use cash, a refinance, or a home equity line? Set a deadline to show proof of funds and a closing date for the buyout. If the money isn't in place by that date, the property goes on the market.

Include a sales protocol that you can follow without a fight. Name a listing start date and decide how to set the list price. Spell out exact dates for price reviews and what happens if you don't receive offers. Agree on how you'll handle repairs or credits to buyers so one person isn’t stuck paying for everything.

Finally, plan for defaults. If someone misses a payment, the other owner can "cure" it (make the payment on their behalf). The person who made the payment gets repaid at closing, perhaps with a small fee or simple interest. Set a clear grace period for late payments and state what happens after that period ends a forced sale or a buyout at a set value with a discount for the risk.

Talk with a real estate attorney in your state and a tax professional if you plan to rent out a room. Get every rule in writing and keep a copy that you both can find.

An Extra Move: The ADU Advantage

Here’s one powerful move that co-buyers can often pull off when a solo buyer can't: building or buying a home with an Accessory Dwelling Unit (ADU).

An ADU is a separate, legal living space on the same property. It can be a converted garage, a basement apartment, or a small cottage in the backyard. Many cities now encourage them to help with housing shortages.

The benefit is a second stream of rental income. This income can be a total game changer. You can use the rent to:

• Cover the entire mortgage payment for a month or two.

• Make extra principal payments to shorten your loan term.

• Cover the full amount for a major repair.

A solo buyer might struggle to get a loan for a larger property that could support an ADU, or they might not have the cash to build one. As a co-buying team, you can combine your incomes to qualify for a larger loan and pool your savings to fund the construction.

A legal rental with a signed lease and income that you can prove can also improve your debt-to-income ratio when you apply for a loan. You can use the rental income to offset the housing costs. Fannie Mae and Freddie Mac have rules for how lenders can count rental income. This can help you qualify for a higher loan amount to purchase a home that a solo buyer could not get on their own.

Final Thoughts: Is Co-Buying Right for You?

Buying together can change the financial math in your favor. A bigger down payment gives you more choices with less risk. The right loan can boost what you qualify for without overstretching. The monthly payments build equity over time, and sharing the real costs makes surprises easier to handle. A clear agreement protects the people and the property, turning a big risk into a solid investment.

Don't treat co-buying as a last resort. Treat it as a partnership. Set clear rules in writing. Keep money simple and visible. Review your plan each year and adjust when life changes.

Your next steps are simple:

1. Talk with a lender about your numbers and options.

2. Talk with a real estate attorney about how to hold title and structure your co-ownership agreement.

3. Start building that shared reserve account.

4. Run a few “what-if” budgets together to make sure the payment fits your life.

Take it at a pace you can afford. This is a journey you’re starting together, so make sure it's a solid one.