Co-share a mortgage or get a mingles mortgage – here’s how to share a home you own.
When the high cost of homeownership is getting you down, co-ownership could be for you.
Finding a Home in the GTA
Housing prices in the Greater Toronto Area can be sky high. Getting a 20% down payment together, let alone buying, seems almost impossible. Let’s see — $1.4 million for a brand new, three-bed townhouse in Mississauga is $6,604 a month at 5.14%, after the $280,000 down payment.
Small House, Big Price
Then there’s the one plus one bungalow with the funky 70s vibe on the 27-foot lot in Rockcliffe-Smythe for $1.65 million. You’re not quite sure how you, your spouse, and his 75-year-old mother who only speaks Portuguese are going to fit into the cramped quarters. Maybe you could put her in the basement bachelor suite (if she can get down the stairs).
Share a Joint Mortgage
By now, it’s looking pretty desperate. It’s time you moved your search over to a mortgage broker who can find you a joint mortgage or separate mortgage for shared property. You can buy more house by pooling your resources with friends, roomies, siblings, or your Portuguese mother-in-law. You co-share the PIT (principal, interest and taxes) and everyone gets a comfortable place to live. Swipe here for CMHC niche mortgages to buy a multi-unit rental property. Advantages of co-ownership.
Five Per Cent Down, No Collateral
Here’s how a mortgage with co-ownership works. When college grad Tommy, 23, goes condo shopping in Toronto, he plans on a low ratio CMHC mortgage. Five per cent down doesn’t go anywhere in The Beaches, where he has a line cook job at a brew pub. East Danforth is 10 minutes by car, but he still needs $700,000 for anything decent. His 2014 Honda Civic and maxed out Mastercard won’t get him far with a conventional lender.
Next: Find a Condo in Old Toronto
Tommy’s East Danforth realtor knows he’ll never get approved for a low ratio mortgage with the $30,000 down payment his parents gifted him. Tommy’s brother Bill, on the other hand, is a “grease monkey” for Mr. Lube. He has $28,000 saved, plus $15,000 from an insurance settlement. By agreeing to co-share a mortgage, the guys can buy a nice two-bedroom walkup with parking for $45,000 down. The brothers can flip their East Danforth property for a profit or Tommy can buy out Bill later.
How to Buy a House with Co-ownership
Like Tommy, you can share a mortgage with a friend, parent, or acquaintance. It’s a win all around. Co-ownership gets you more home with a lower down payment. Getting approved for a mortgage can be easier and you might qualify for a higher loan amount.
When you apply to co-share a mortgage, your name is on the title along with all the mortgage holders. You own the home and associated liabilities as joint tenants. That means all the mortgage holders are responsible for home insurance, legal claims like slips, trips, or falls, and keeping the mortgage in good standing. When you die, the home transfers automatically to the surviving joint tenants. No probate is required.
Your combined income qualifies for lower interest rates and your credit score goes up as you make the monthly mortgage payments. Better yet, combining your down payments to qualify for a conventional (20% or more down) mortgage avoids the high cost of mortgage default insurance for a CMHC mortgage.
Is that a Shared Equity Mortgage?
Don’t confuse a co-shared mortgage with shared equity homeownership. This is how they differ. Middle-income homebuyers can apply for a shared equity mortgage through CMHC’s First-Time Home Buyer Incentive. Compare CMHC to a private shared equity mortgage.
Sharing a “Mingles” Mortgage
Unlike a joint mortgage, a mingles arrangement allows you to buy a home together, but with separate mortgages. As a tenant-in-common, you can use your interest any way you want, including selling, gifting, or willing it to others.
You can own 5%, 25%, 50%, or more or less of a home, whatever you agree on. Legal fees, property transfer tax, mortgage appraisals, home inspection costs, property taxes, and upkeep are shared between the owners. On the downside, tenants-in-common have no survivorship rights. Probate is required if a co-owner dies. Selling can also take longer. But you do have options and that’s why you need a real estate lawyer.
Why You Need a Real Estate Lawyer
Drafting a Legal Co-housing Agreement
Co-sharing a mortgage has its risks. Having a legal co-housing agreement prevents misunderstandings about how to split utility and maintenance costs and who does the housekeeping. More importantly, you can decide what to do if:
- you lose your job and can’t pay the mortgage
- you get hit with a special levy
- a high wind tears up the shingles
- your partner forgets a pot on the stove
- property taxes skyrocket
- you fight over the housekeeping
- you can’t stand living together.
A valid co-housing agreement drafted by an Axess Law real estate lawyer, signed and witnessed by all of you, protects your legal rights in case of disputes you can’t resolve. Agreeing on how to divide property after a breakup is why a binding, enforceable co-housing agreement is so important.
Selling a Shared Mortgage
Saying “we’ll just sell if it doesn’t work out” sounds easy. But breaking a shared mortgage can be tricky. Naturally, your priority is to protect your credit score and get back your equity. You could work with a realtor to find a qualified buyer, sell privately (assumable mortgage anyone?), or sell your interest to a co-owner. Your co-housing partners could refinance their mortgage(s) to buy you out. Or they might agree to dissolve their co-housing agreement, sell, and share the profits (or losses). Axess Law can discharge your mortgage if you sell or witness and sign new loan obligations if you refinance.
Agreeing to Disagree by Going to Court
What if you want out just as the real estate market drops? Be prepared for a potentially slippery slope. Unless everyone you co-share a mortgage with agrees on what to do next, you may have to file a legal claim to dissolve your partnership. Axess Law can file basic court documents for you and refer you to our trusted legal partners for ongoing assistance in court. Call us to discuss.
Affordable Legal Services, Anywhere in Ontario
Access lawyers for less in the Greater Toronto Area, Ottawa, or anywhere in Ontario when you buy, sell, or transfer property. Axess Law’s flat fee real estate lawyers are affordable, and our rates are all inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it.
Use a virtual real estate lawyer.
Book a Flat Fee Real Estate Lawyer
Get legal advice before you agree to co-share a mortgage. Axess Law Ontario real estate lawyers draft a co-housing agreement by video call or in person 7 days a week, at your convenience. Video call from anywhere – ask us how. Call toll free to 1-877-402-4207 or in Toronto, dial our 647-479-0118 lawyer line to make appointments, or schedule your own with our easy online booking form. Meet us at any of our conveniently located Greater Toronto Area or Ottawa law offices. We have onsite parking and easy transit access.
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