You can buy a house with multiple owners in Canada by using a joint mortgage. It’s common for people to buy a house with multiple owners, such as friends, parents, business partners, co-workers and family. It’s easier to qualify for a mortgage when you have multiple incomes on the application, as it lessen the debt load.
It is becoming increasingly difficult for most to own a home due to the expensive outbid housing market in areas such as Ontario and Quebec. The issue is prominent in Ontario in cities like Ajax, Whitby, Mississauga, Markham and Belleville.
With the average single family in Whitby selling over-asking every time in the last month – many first-time home buyers are getting frustrated with the home buying process.
If you’re a first-time home buyer with limited income to afford a high value mortgage, you do have options to get into homeownership. With a joint mortgage, you can buy a house with multiple owners. It reduces the need to go in with a high income since the debt burden is shared with multiple borrowers.
With co-ownership, you can share the burden of the initial down payment, land transfer tax, monthly mortgage payment, annual property tax and homeownership costs.
For someone on a $60,000 salary – a $700,000 will be out of range. But once you add two more people with similar income levels, you can quickly qualify for a home over the $1 million range (not that it’s needed). In recent years, co-ownership has increased among couples. With two or three couples getting together to buy a big house, it can make ownership considerably easier.
It’s important to consider the factors that impact co-ownership and getting a mortgage buy a house with multiple owners.
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Mortgage Applications for Multiple Owners
When buying a home with multiple people, you need to consider financing issues. While you are bringing multiple down payments and incomes to the table – you also need to consider the negatives.
On the application, you are pooling together debts, credit scores and existing financial burdens. The lender may not view these individually, but rather as a collective total. If one of the buyers has a lower credit score or carries on a high amount of debt – they may break the deal.
If the lender manages to approve the deal, they may still try to protect their risk by charging a higher interest!
You should consider co-ownership with people who have the capability to make payments, and those have a good credit history. Let’s face it, if one of the owners has a poor credit history – that can be a risk to you as well.
In situations where one or more buyers have a questionable financial track record that can hinder the mortgage application, it may be wise to keep them off the application.
The lender will have a lot of questions when it comes to a joint mortgage. On an application that has multiple names, the lender wants to know why these people have come together. The lender needs to know what the story is and how will the living situation be? or will this be an investment property?
In the eyes of the lender, all persons on the title are responsible for the mortgage payment. Even if a 25% ownership title holder misses their payment – it can impact everyone else on the title.
As the part-owner of the property, it is your responsibility to make sure everyone including yourself make that monthly payment. Missed payments can cause harm to your credit history and score, while leading to repossession actions by the lender.
All this aside, co-ownership can be a favorable option for people who find it difficult to qualify for a mortgage alone.
Which Mortgage Option Should You Use?
With co-ownership and buying a house with multiple borrowers – you need to think about the future. Anything could happen to the living situation. One or more of the owners may need to move – or they may decide to buy a house on their own after selling their ownership.
In all these cases, there needs to be considerations made to the type of mortgage you obtain from your lender.
A fixed rate mortgage may be great if you suspect interest rates to rise, but it can cost you a considerable amount in penalties if you decide to terminate your term early. For homes with multiple buyers, it is recommended to obtain a variable rate mortgage. A variable rate mortgage will still have a penalty, but it’ll be much less.
A variable rate mortgage penalty is the equivalent of interest costs for three months.
Legal Considerations in Co-Ownership
It doesn’t matter if you’re in the same family, bestfriends, college roommates or co-workers – you need to lay out the fine print and all the legal considerations.
What happens if one person wants to sell the home, but other doesn’t? What should happen when one owner wants to buyout the other owner? These are all questions that needs to be in the legal contract established between the owners on the title. After all, we’re trying to avoid potential joint property ownership disputes.
Additionally, the contract would indicate percentage ownership, payment ownership and even the responsibilities of each owner during the co-ownership.
A real estate lawyer would be in charge of creating these documents and ensuring all parties are protected. If you’re buying a home with multiple owners, it is highly recommended to invest in an experienced real estate lawyer to draw out your contract. The legal costs can be split among the parties.
Types of Co-Ownership in Canada
Depending on the structure of the deal and parties involved, there are two types of co-ownership. In Canada, you have joint tenant ownership and tenants-in-common.
Joint Tenant Co-Ownership
Joint tenant co-ownership is when a married couple purchase a property, and share in the ownership of the property. In the event one owner passes, the ownership is given to the other party still on title.
Tenants-in-Common Co-Ownership
In a tenant-in-common co-ownership structure, each of the owners are given a portion of the ownership. If one owner passes, the ownership is will become a part of their estate.
FAQ
The following are some questions we often get about co-owning a house with parents, friends, family and investors.
Can You Get a Joint Mortgage with Your Parents?
You can get a joint mortgage with your parents with all your names on the title of the home. If you are buying a home with your parents, you should also get a contract drafted to protect everyone. Speaking to a real estate lawyer is advised. If your parents already own a home, they can still get a joint mortgage with you.
Can You Get a Mortgage with Your Girlfriend?
You can get a mortgage with you girlfriend by getting a joint mortgage. The bank or lending company will verify the income, credit score and credit history for you and your girlfriend. For the mortgage application, the combination of all incomes and debts will impact the mortgage approval. If you have enough income and minimal debts, you can qualify for a mortgage – considering the your ratios are within the limits.
Can Two Couples Buy a House Together?
Two couples can buy a house together using a joint mortgage. A joint mortgage brings together multiple buyers for a mortgage application. Since the lending company considers all incomes and debts for the application, it is important that everyone bring something good to the table. If someone is debt heavy, it can sway the mortgage underwriter to ask further questions. When two couples buy a house, it is also recommended to get a lawyer to draft a contract for the ownership and title.
Can Three People Buy a House?
Three people can buy a house by choosing a lender that works with joint mortgages. These are mortgage applications that bring multiple buyers together for one property. When you work with a lender who specializes in joint mortgages, you will be asked fewer questions about why these three people are coming together.