Buying a home: You don't have to go it aloneBy Kimberly Greene
The benefits are obvious. The more people who are in on the home purchase, the greater the purchasing power, and that can get you a bigger home, a home in a more desirable location, or both. It’s not a new idea — in fact, the convention of living solely with a nuclear family is only a few generations old — although circumstances such as low home inventory or high prices in parts of Canada that had previously been well within reach of a single person or couple have made the idea more acceptable to people who may have not considered it before.
Young buyers are also significantly more likely to consider purchasing a home with a family member (24 per cent versus 13 per cent for the general population) or with a friend (24 per cent versus nine per cent of the general population), according to a2016 RBC Home Ownership Poll. The number of single female home buyers are on the rise, and co-buying can be a good situation for two single people who want to invest in a home and don’t have any partners or other debt people in this situation, female or male. In terms of living together, it’s essentially the same as it would be if the two people were roommates. Lenders don’t view the co-applicants any differently as they would a married couple.
Kathy Schmidt is the broker and owner of Schmidt Realty Group in Edmonton, AB, who started a Purchasing Partner Program because it made her “crazy” that people would save their money but in times of escalating home prices, they couldn’t keep up with the market.
“It made me feel sad, frankly. I mean, they just can’t keep up,” Schmidt says. “If a house prices grows by just five per cent, and it’s a $400,000 property, a buyer needs to save $20,000 a year just to keep up. And most people would find that pretty challenging to do, especially someone just starting out in their career, and maybe just trying to get their feet off the ground, and basically pay[ing] off some other debts like student loans.”
Her program is a series of seven steps, meant to guide prospective co-buyers along the way. It’s similar to the steps of buying a home yourself, only with a couple of additions:
- Start conversations within your social circles and find somebody who’s in a similar situation to you who wants to buy, but can’t
- Consult with a realtor
- Meet with a lender
- Meet with a lawyer and sign a document outlining the arrangement and terms
- Find a house
- Move in
- Cash out when you’re ready
There are several lenders who have joint mortgage products, or mortgages that can be split into different parts. If you’re a member of the (VanCity), for example, then you have the option of checking out their Mixer Mortgage, which not only offers competitive rates and flexible features, but also legal, insurance, and wealth protection support you need different than you would with a straightforward mortgage.
You also have to be aware as to how you and your co-buyer(s) are listed on the title: community property (which applies only to married couples), joint tenants or tenants-in-common. If you and your co-buyer are listed as joint tenants, then you have equal interest in the property and when one of you dies, then the title is automatically transferred to the surviving joint tenant(s). With tenants-in-common, however, each of you owns a part of the property that you can do with as you see fit, including selling it to someone else. The different types of ownership can make a big difference when it comes to tax implications and disputes between owners, and if not fully understood, can cause huge headaches.
Risks of co-buying
There are some real risks when it comes to buying property with someone else. At best, it can get multiple people – or even multiple families – into the world of property ownership, allowing all parties involved to build equity where no one would’ve been able to do it alone. It not done properly, however, it could lead to the destruction of friendships, estrangement of family, and/or financial ruin.
Perhaps the most difficult aspect of buying a home with another person is that you have to be aware of not just your life circumstances, but also those of someone else’s. When you’re buying a home with your partner, your lives are wrapped up together and dependent on each other. When you’re buying a home with another person, you could get a job transfer, get engaged, have to suddenly care for a sick relative – and the same holds true for your co-buyer(s). Things can change in an instant, and you have to have a proper plan in place to address the unexpected.
Get it in writing
When co-buyers are friends or family, it can be tempting to assume that everything will go smoothly and that you’ll never need to get the nitty gritty details in writing. But, as any home owner will tell you, there are plenty of problems that arise when owning a home, and you don’t want to have to argue over each detail, especially if time is of the essence.
“It does present some interesting issues which many would not think about when getting into the deal. It is similar to a business partnership and many new partners do not appreciate the value of a partnership agreement when they start out,” says Ray Leclair, Vice President, Public Affairs at LAWPRO.
“When things go wrong, matters are often worst if there is no partnership agreement. The same could be said for a co-buying agreement.”
Schmidt suggests that anyone who wants to undergo this kind of arrangement have a lawyer set some kind of purchasing partner agreement, that creates talking points and covers a variety of outcomes, everything from what would happen if one owner wanted to sell the property and the other wanted to stay, or how to handle small renovations and who pays for what.
This is not the time to be cagey about finances. When you sit down to create this agreement, you have to be open with your buying partner about any debts that you have that may affect the strength of your mortgage application. Even though some lenders will allow you to apply for mortgages separately, the amount of mortgage for which you’re approved will affect the home that you’re able to buy, so it’s best to be upfront with your purchasing partner from the start.
Co-buying: the wave of the future?
As to whether or not co-buying is something that first-time home buyers are looking for, Schmidt says that it’s more used as a tool for realtors to bring up to clients who didn’t know that it was an option.
Co-buying can also act as a foray into the world of property investment. If you’re buying young with a friend and end up in a situation where you want to buy with a partner or can afford to buy a home on your own within a few years, there’s no reason why you can’t keep the property as an investment. A popular option is for a family member to buy it with you, and while you may live there alone, that family member may have an equal say in any and all renovations or home-related decisions.
Above all, Schmidt advises clients to be aware that the option is there, and a perfectly viable choice to make.
“Keep an open mind and be very open in your conversations and recognize that, just like having a roommate, there’s gonna be some bumps along the way, some things that aren’t really convenient,” she says, “but really to keep that long term view of, you’re doing this for a reason, you’re doing this to build up everyone’s financial strength, and also to live in a place that you’d rather be living in, rather than living necessarily . . . and to really think outside the box.”
Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage.