Many people dream of investing in real estate, but it can be difficult to do so with the mortgage stress test and house prices that seem to go up every day. It can be expensive to afford a house on your own, so you might consider co-owning it with someone. Buying a home with a spouse or common-law partner is relatively common, but can you buy a house with a friend or a group of friends?
Key Points
- Buying a house with friends makes it easier to get into the housing market as you can spilt the purchase price and ongoing expenses.
- Two main ownership arrangements when buying a house with multiple people include joint tenancy and tenants in common.
- Each of these arrangements deals with property shares and right of survivorship differently.
- It’s recommended to have a co-ownership agreement drafted. It should detail all facets of the arrangement, including everyone’s responsibilities and exit strategy if someone wants out.
Can You Buy A House With Friends In Canada?
Yes, buying a house with a friend in Canada is possible. This is typically done through a joint or co-ownership mortgage.
With this kind of mortgage, you pool your money with at least one other person to apply for a mortgage. A joint mortgage is often easier to qualify for than one by yourself because joint owners have more purchasing power by combining incomes.
How Many People Can Be On A Mortgage?
While a joint mortgage is one that involves at least two individuals, there is no specific limit on how many people can enter such an arrangement. That said, most lenders typically do not allow more than four people on a mortgage for a home.
Types Of Joint Mortgages
There are two types of joint mortgages in Canada: joint tenancy and tenants in common.
Joint Tenancy
Joint tenancy is a common option between couples who want to purchase a home together. With a joint tenant mortgage, each co-owner equally owns the home.
Moreover, with a joint mortgage, you cannot sell or renovate the home, or refinance the mortgage, without all the co-owners’ approval. If one co-owner passes away, their ownership share is transferred to the surviving co-owner(s).
Tenants In Common
This form of joint mortgage is usually used by business partners, friends, and family who want to purchase a property together. Unlike a joint tenant mortgage, a tenants in common mortgage doesn’t give every co-owner an equal ownership share in the house. Their ownership share is dependent on how much money they put into the house.
What Happens When One Co-Owner Dies?
The exact way the mortgage or homeownership will be dealt with if a co-owner dies depends on the specific type of mortgage arrangement:
Joint Tenancy
When a co-owner in a joint tenancy arrangement passes away, the surviving co-owner will become the sole owner and will take over the mortgage. This is possible thanks to the “right of survivorship”, which gives the remaining co-owner the rights to the property. If both co-owners die, the property will be dealt with as if the ownership was a tenants in common arrangement.
Tenants In Common
Co-owners can name an inheritor in their will. So, if a co-owner dies, the ownership share can go to their heirs or next of kin. In the absence of a will, normal estate laws apply, where the courts within your province will decide how your share of the property will be distributed. This usually results in your ownership shares being transferred to your heirs or next of kin.
Co-owners in a tenants in common mortgage can also sell their share to other co-owners if they draw up a trust deed. If there is no trust deed or if a co-owner passes away with no heirs, the entire house must be resold due to the “trust of sale” agreement that comes with tenants in common mortgages.
Overview Of Joint Mortgages
The following chart outlines the features of a joint tenancy and tenants in common side-by-side for easier comparison:
| Joint Tenant | Tenants in Common | |
| Property Share | Equal between tenants | Depends on how much each person invests |
| Down Payment | Minimum of 5%, but 20% recommended | Minimum of 5%, but 20% recommended |
| CMHC Insurance | Putting more money toward the down payment means lower or no insurance fees | Putting more money towards the down payment means lower or no insurance fees |
| Purchasing Power | You can buy more expensive houses because you are combining income, credit, and down payments with others | You can get a larger share if you have better credit, have a larger income, or invest more in the house. |
| Ownership After Death | Transfer to surviving co-owner(s) | Transfer to heir(s)/next of kin, but can be sold to surviving co-owner(s) |
Pros And Cons Of A Joint Mortgage
Joint mortgages have both advantages and disadvantages when compared with mortgages you get as an individual.
Pros
- Larger Down Payment. Since co-owners in a joint mortgage are combining their incomes, they have more money to put toward a down payment. This reduces the overall loan amount and therefore results in lower monthly mortgage payments.
- Lower CMHC Fees. If the co-owners make a larger down payment, they can qualify for lower or no CMHC fees.
- Can Qualify For A Larger Mortgage Amount. A bigger loan amount will be necessary if you want to buy a more expensive home. By applying for a mortgage as a group, you’ll be combining multiple incomes. This can help you qualify for a larger mortgage amount to finance the purchase of a house of higher value.
- Split Expenses. Because there is more than one co-owner, the expenses that come with the house are shared. Each person will pay less than they would if they purchased the house by themselves.
Cons
- Everyone Must Get Approved. If one of the mortgage applicants has bad credit or weak finances, this could pose a problem for everyone else when applying for a home loan.
- Disagreements On How To Handle The Property. When you are getting a mortgage with one or more individuals, there can be disagreements on how to handle the property. Coming up with an agreement before you get the mortgage will help to avoid these disagreements.
- You’re Responsible For Missed Payments. If one person doesn’t pay their portion of the mortgage payment, the other co-owners must pick up the slack. They might have to make a larger payment than they were expecting, and each person’s individual credit score could also suffer. So, it’s best to get a mortgage with people you know you can rely on to pay their part of the mortgage payment.
Learn more about the pros and cons of a joint mortgage.
How To Buy A House With Multiple Owners In Canada
There are some things that you should think about when you’re getting a mortgage with friends so you can get ahead of as many issues as you can:
Create An Agreement
You should create a legal agreement similar to a prenuptial agreement when getting a mortgage with friends. This agreement will help to define the co-owner expectations before getting the mortgage, including:
- How expenses are divided
- How much of the house each person owns
- What happens when someone wants to get out of the mortgage
Decide On The Structure Of Ownership
Will you enter into a joint tenancy or tenants in common arrangement? Discuss the features of each scenario (as outlined above) to determine which type of arrangement suits you best. More specifically, a joint tenancy provides each co-owner with a right of survivorship, while a tenant in common provides each co-owner with a specific share in the property with no right of survivorship.
Consider Everyone’s Finances When Borrowing
Everyone has a different financial history. While some people might have a great income, some people might be riddled with debt.
The more people that get a mortgage together, the trickier it becomes to get one because of their varied financial histories. One person’s poor financial history or credit score can torpedo a mortgage application.
In that case, it might make sense to exclude one of the buyers from the property title. It doesn’t mean that the buyer is not an owner. Instead, their interest in the mortgage can still be protected if a separate legal agreement is put in place.
Get Pre-Approved For A Mortgage
Before you start house hunting, speak with a mortgage specialist to help you get pre-approved for a mortgage. This will give you an idea of how much you can afford based on everyone’s financial and credit health. Plus, a pre-approval letter in hand will make your offer more competitive when you finally find a house you can all agree on.
Before you get a mortgage with someone else, you should determine who is responsible for what and how responsibilities are shared. Who, for example, pays the power bill? What happens when you have to pay for repairs? Who mows the lawn?
Figuring these things out ahead of time will help everyone know what they’re getting into before they get the mortgage.
Pool Money For Future Repairs And Maintenance
It’s a great idea to put everyone’s money in a pot to cover future repairs and maintenance costs. One of the great things about this pool is that every co-owner is responsible for the cost of any repairs and maintenance rather than putting that responsibility on one co-owner. Everyone could, for example, put some money away every month in a joint bank account so the money can be easily accessed when needed.
House Rules
No matter who you live with, eventually there will be some sort of conflict. If more than one co-owner plans on staying in the house, everyone should agree on house rules to minimize conflict.
What Happens When One Co-Owner Wants Out of The Agreement?
Coming to an understanding before you buy a home with friends is crucial. This includes discussing how a co-owner may back out if they no longer want to be on title or continue with mortgage payments.
This is where a detailed co-ownership agreement comes in very handy, as it should stipulate how a co-owner may be removed from ownership of the home with their appropriate and rightful share of the equity.
Here are a couple of key components to include in a co-ownership agreement to deal with a co-owner who wants out and avoid or handle conflict:
- Buyout price. This specifies how much the remaining co-owner(s) would spend to buy out the existing co-owner. It is usually the appraised value of the home at the time of the buyout. You’ll likely want to put in a clause in the agreement that indicates none of the buyers can pull out in the first 2 to 3 years of purchasing.
- First right of refusal clause. This offers the others the right to buy that share first before putting the home on the open market.
Bottom Line
If you want to buy a house with friends, you can do so with a joint tenant or tenants in common mortgage. The main differences between these kinds of mortgages are the size of the ownership shares and what happens to the ownership shares when one co-owner passes away. One big thing to consider when you have a joint mortgage, you have other owners to deal with, so coming up with agreements and defining roles and responsibilities ahead of getting the mortgage will go a long way.
