While it’s fairly common for those in tight rental markets to have a roommate to help split the rent, an emerging trend is buying real estate with a family member or friend.
Faced with high home prices in big cities and tougher mortgage rules, including a new stress test on uninsured mortgages, it’s becoming increasingly difficult for first-time homebuyers to get their foot in the door of the real estate market. As such, prospective buyers are finding more creative ways to be able to enter the real estate market, and buying with a family member or friend is one of them.
When considering co-ownership, it doesn’t have to be with a spouse or romantic partner. It can be your brother, sister, aunt, uncle, cousin, friend or even co-worker. When you’re buying with a partner, make sure it’s someone you can trust. You’ll both be on the title and responsible for paying the mortgage on time and in full. If either you or your partner run into financial difficulties and are unable to pay your respective share of the mortgage, it could adversely affect your credit score if the other party is unable to come up with the extra money.
For that reason, I recommend treating co-ownership like a business arrangement by having a lawyer draft up an agreement. Also, this living arrangement likely isn’t permanent. You’ll want this agreement in place when you or your partner wants to sell. The last thing you’d want is for the sale of your property to hurt your relationship.
Qualifying for a Mortgage is Easier with a Partner
Buying with a partner helps you in several ways. The first is mortgage qualification. Two of the factors that lenders consider when qualifying you for a mortgage is your down payment and income.
Saving a sizable down payment is tough, especially for those living in cities like Toronto or Vancouver with sky-high rents and home prices.
Not to mention it’s also more challenging to qualify for a mortgage on a single income. Even being able to afford to a starter home, such as a condo in Vancouver, on a single income can be tough. That’s where buying with a partner comes in handy.
When buying with a partner, both of your down payments and incomes are taken into account. This makes qualifying for a mortgage a lot easier. In many cases it means qualifying for a home you otherwise wouldn’t be able to afford on your own.
For example, instead of only being able to afford a cramped condo, you might be able to afford a more spacious townhouse or semi-detached house. In essence, buying with a partner helps you move up the property ladder faster.
If you don’t know anyone who’s in the financial position to purchase a property with you, you’re not necessarily out of luck. The sharing economy is throwing homebuyers a lifeline. There are real estate matchmaking services like C-Harmony that will pair you with fellow homebuyers.
Some lenders like Meridian Credit Union are making buying with family and friends easier than ever by offering mortgages specifically for this living arrangement. With the Family and Friends Mortgage, up to four people can obtain a mortgage at a low rate.
Ready to Buy with a Partner?
The first step is to find a reliable partner who would be willing to purchase a property with you. After that, you’ll want to get pre-approved for a mortgage. With your housing budget in mind, you can buy a property together that will be a good long-term investment for both of you.
Once you purchase a property, don’t forget to have an agreement drafted up by a lawyer so there aren’t any surprises when one partner eventually wants out of the deal.
This will make for a happy, and hopefully long-term, real estate partnership.
Alan Harder is a partner with MortgagePal, an online mortgage brokerage with agents in BC, Alberta and Ontario.