Should I take on a roommate to help with the mortgage?

Posted by  on Nov 26, 2014

Q: I've owned a house for several years; but lately, due to career setbacks, I'm having trouble keeping up with the mortgage payments. I have a good friend who is looking for a place to live, and my house has plenty of room to accommodate him. Is it a good idea to take on a roommate to help with the mortgage?

A: While much of the answer comes down to compatibility, there are also some practical considerations that go into this decision:

  1. Make sure any rental arrangement is formalized. Even among friends, misunderstandings can occur in any financial arrangement that is left at all vague. When you use terms like "help with the mortgage," it might create room for your roommate to get the impression that he is buying into an ownership stake in the house. The terms of any lease can be very easy and non-binding, but just having a lease will make it clear that this is a rental rather than an equity arrangement.
  2. Explore your refinancing options. Mortgage rates remain low, so you might be able to reduce your payments by refinancing. You could also structure a new mortgage loan so it spreads your remaining balance out over more years, which should also reduce your payments. In other words, you may be able to solve your mortgage problem yourself by using a mortgage calculator to explore the option.
  3. Consider whether your home is the right size for your needs. If your house is big enough to take in a tenant, perhaps that means it is more house than you need. Think about downsizing to a smaller and less expensive home, using your existing equity as a down payment to reduce the payments on your new mortgage loan.

In some ways, taking on a roommate might seem like the ideal solution because it would solve your friend's problem and your own. However, before you make that decision, take a good look at the alternatives to see if it really is the best solution for your needs.

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