As Canadians adjust to hot housing markets and stagnating wages, there’s been increasing buzz around teaming up with friends or family to buy a home.
About a third of Canadians would consider co-buying a home, according to a recent ReMax survey; Capital One research found that nearly half of millennials (46 per cent) would be open to buying a home with family or friends.
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“With the cost of housing going steadily up, it’s become out of reach for many,” said Bill Whyte, senior vice-president and chief member experience officer at Meridian Credit Union.”I think there are new generations that are coming in, looking at it differently.”
Maridian has created a family or friends mortgage guide to help people through the process. Up to four names can be on the mortgage’s title, meaning four owners.
“Here’s an opportunity to pool your resources together, pool your income and still potentially look at home ownership.”
While combining funds with family or friends can result in more square footage, that bigger house comes with unique challenges said James Laird, president of CanWise financial and co-founder of RateHub.ca.
“Economically speaking, more income makes homes easier to afford,” said Laird.
“But you need to be careful that anyone you’re getting a mortgage with are people you think in the long term will be good financial partners for you.”
Before signing on the dotted line along with three of your closest friends, here are some things to consider.
Know all the costs
Home ownership is more than just a mortgage payment.
“It’s important to know all the costs of home ownership … go in with your eyes wide open because it’s much more than just principal and interest,” said Whyte. “Make sure you understand all the moving parts of home ownership.”
You need to consider property tax, bills, repairs, upkeep, one-off expenses — the list goes on.
“Determine how you will share the home,” said Whyte. “Is everybody equal partners in it, is everyone putting the same amount of money into it?”
Be on the same page as your home-buying pals for household costs and emergencies. Will you all contribute to a contingency fund? Try DIY options or immediately call in an expert? These discussions should happen before the basement floods or furnace craps out.
You’re on the hook 100%
“Everyone’s on the hook for the mortgage in its entirety,” said Laird.
If you buy a house with two friends and one can’t pay their share, it falls on the other title holders.
“The remaining people are on the hook for that loan 100 per cent,” said Laird.
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Make sure you’re partnering up with people who are dependable — before you’re left with a larger share of the loan.
“This involves a fair amount of trust … if it is [with] friends, you should be thinking of them more as family because this is a very close relationship you’re entering into and it’s a long-term one as well.
Get everything in writing
Get an agreement in writing that includes everything from dealing with disagreements to plans for eventually selling the property, said Whyte.
“What happens when you want to sell the house? Is there first right of refusal?”
READ MORE: Numbers show it’s harder for millennials to buy a home than it was for their parents
Should relationships fall apart or one person wants to get out of the mortgage, what are you going to do?
“Even with the best intentions, sometimes things don’t work out and it could be for unforeseen circumstances so you’ve got to protect all parties as fairly and equitable as possible,” said Whyte.
Be prepared for things to get messy, said Laird.
“Whatever the nature of the relationship was entering, when you mix business and money with friendships and family then you’re risking those relationships for sure.”