Pair up to get into the market
With soaring home prices, co-owning a property may be a great idea
Helen Birkett longed to get into the housing market. But as a single woman, working three different gigs, she didn’t have the kind of steady, nine to five job that lenders want to see.
Then, one night, about 16 years ago, while out for a drink with a few friends, she was bemoaning the fact that she’d been rejected yet again for a mortgage.
“We should go in together on a property,” joked one of her friends. They all laughed, but Birkett couldn’t stop thinking about what he’d said.
Finally, she called him. “Let’s do this,” she said. “Let’s go out and look at some properties.”
They went out shopping for a house that weekend, found a place they liked and bought it. “Everything was split 50-50,” she says. “And we had a legal agreement that spelled that out. I even drew up a will to say what should happen to my portion of the property if I died.”
That was the first of two properties that Birkett, now 42, has purchased with the same friend. They sold the first when they received an offer from a high-rise condo builder. They bought the latest just three years ago, paying $550,000 for a house they renovated together. They both had two floors, but Birkett turned one of hers into a basement apartment to help with the mortgage. Now they’re looking to sell again — her friend may move to the country and she is considering her options.
Initially, many of Birkett’s friends questioned her decision to co-own with a friend. But the shared house is now worth $800,000 and with the proceeds from the sale, Birkett should be able to buy a place of her own. “I don’t think I would have ever got into the market if I had waited,” she says.
Bill Whyte, senior vice president and chief member experience officer for Meridian Credit Union says Birkett isn’t the only one struggling to get a foothold on the property ladder in a housing market characterized by soaring home prices, particularly with the federal government’s new stress test. “Even though our five-year fixed mortgage is 2.69 per cent right now, you still have to qualify at 4.69 per cent,” says Whyte. “That is making the entry into the housing market difficult for people, even if they’ve been saving for years.”
Hence the advent of new mortgage options allowing friends or family to pool their resources and buy together. In many ways, Meridian’s new Family + Friends Mortgage, introduced in February, in time for the spring mortgage season, operates like just about any other mortgage.
“There’s still a flexible repayment schedule and you can choose any kind of mortgage you want — variable, two-year or five-year fixed,” says Whyte.
The big difference? Up to four people can be on a title. They could be siblings, cousins or simply friends that have known each other for a long time. And parents may sign on too, either so that they get their deposit back if the kids sell, or because they want to set up an upstairs/downstairs arrangement with their adult children.
Similarly, Genworth Canada offers a ‘family plan program’ that allows people to help buy a home for immediate family members who have good credit but lack the income to meet standard gross debt service ratio (GDSR) and/or total debt service ratio (TDSR) requirements. The exception: it can’t be used to buy investment properties that won’t be owner-occupied.
In spite of the obvious advantages of teaming up to buy a mortgage, it’s not a venture to be undertaken lightly, warns Whyte. “You want to make sure you understand all the nuances,” he says. That means having a candid talk about who covers what expenses, and what happens if one party to the mortgage wants out, or someone can’t cover their share of the mortgage payment. “Divorces happen all the time,” he says. “And that’s messy enough. When you’ve got four people on the mortgage it can be a fair bit messier.”
Before purchasing a home with friends or family, be sure to have a candid talk and write up an agreement outlining the ‘what ifs,’ such as one party on the mortgage wants out or can’t meet the monthly expenses.