Teaming up to buy your home sweet home
Borrowing options these days allow up to four people to hold the same mortgage
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 9 to 5 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 highrise 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 — he 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. Buyers are struggling to get financing, particularly with the federal government’s new stress test, which stipulates they must qualify at the Bank of Canada interest rate.
“Even though our five-year fixed mortgage is 2.69 per cent right now, you still have to qualify at 4.69 per cent,” Whyte says. “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 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,” Whyte says. “There are no extra fees or increased interest rates and there’s nothing restrictive in the mortgage itself.” The big difference? Up to four people can be on 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 to get their deposit back if the kids sell, or 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 ratios (GDSR) and/or total debt service ratios (TDSR).
The program could work for a parent who wishes to help an adult entrepreneurial child buy a home or wants to purchase a house or condo for their university or college-bound kid, Genworth’s website suggests. It could also enable an adult child to buy a home for aging parents on a fixed income. 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.”
There are extra costs associated with writing up a legally binding joint-ownership agreement, Whyte says. But it could be money well spent. Meridian offers a booklet with suggestions and tips on its website, including what to cover in a legal agreement and what other matters you should discuss up-front.
A key thing to remember is that, even if the mortgage holders own different shares of the home, they are all equally liable for the mortgage, Whyte says.
“A house is generally the biggest purchase most of us make, whether it’s with someone else or on our own,” he adds. “It’s something you want to research and think about before jumping right in.”
As for Birkett: she has no regrets. “When you think about the number of relationships that are falling apart, what’s the difference if you buy with a friend or a husband?” she asks. “Basically that joke over drinks turned into the best decision I ever made.”
Before purchasing a home with a friend be sure to have a candid talk and write up an agreement outlining the what-ifs.