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 very expensive to afford a house on your own, so you might consider co-owning it with someone. You can buy a house with a significant other, but can you buy a house with a friend or a group of friends?
Can You Buy A House With Friends?
Yes, you can buy a house with friends 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 get than conventional mortgages because the future owners have more purchasing power by combining incomes.
Types Of Joint Mortgages
There are two types of joint mortgages in Canada, joint tenant and tenants in common.
Joint Tenant
This is a common option between couples who want to purchase a home together. With a joint tenant mortgage, every co-owner equally divides the mortgage between themselves so everyone gets an equal ownership share. Moreover, with this form of joint mortgage, you cannot sell or renovate the home without all of the co-owner’s approval. You also cannot refinance the house without the other co-owner’s 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.
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. It also often goes to their heirs or next of kin if there is no will. 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
| Joint Tenant | Tenants in Common | |
| Property Share | Equal between tenants | Dependent 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 pros and cons 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.
- Lower CMHC Fees – If the co-owners make a larger down payment, they can qualify for lower or no CMHC fees.
- Tax Benefits – If a co-owner uses the home as their primary residence and has their name on the property agreement, they can get an income tax rebate. Moreover, taxes, such as land transfer taxes and property taxes, can be split between every co-owner so their payments are smaller.
- Can Qualify For A Larger Mortgage Amount – By applying for a mortgage as a group, you’ll be combining multiple incomes which will help qualify for a larger mortgage amount. That means you’ll be able to purchase a house of higher value.
- Split Expenses – Because there is more than one co-owner, the expenses that come with the house are split and every person has to pay less than they would if they purchased the house by themselves.
Cons
- 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, 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.
Things To Consider When Getting A Mortgage With Friends
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 co-owners’ expectations before getting the mortgage, including how expenses are divided, how much of the house each person owns, and what happens when someone wants to get out of the mortgage.
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 financial history can torpedo a mortgage application, or at least make getting a mortgage less desirable due to higher interest rates. In that case, it might make sense to exclude one of the buyers from the property title. It doesn’t mean that that buyer is not an owner – their interest in the mortgage can still be protected if a separate legal agreement is put in place.
Check out why a smaller down payment can lead to lower interest rates.
Determine Shared Responsibilities
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 together a pool of money that can cover future repairs and maintenance. 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.
Joint Mortgages FAQs
What happens to the ownership shares if one person dies?
What’s an alternative to a joint mortgage?
What if my co-owner has bad credit?
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. It might be more advantageous to purchase a home with someone else via a joint mortgage, or it might not – they have both pros and cons compared to conventional mortgages. One big thing to consider when you have a joint mortgage is that you are not the only owner. 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.
