Is co-ownership the answer for an affordable mortgage?

Thinking about co-ownership? You'll have those roommates for a long time.

So you may as well be clear on the concept.

It's pretty typical to buy a house with a spouse, common-law partner, or a family member. But co-owning and co-living with non-family members has become a more popular idea in the face of sky-high prices, bidding wars, and now, higher inflation and higher rates. Plus, pandemic-imposed loneliness has enlightened some to their desire to be part of a closer-knit community.

Pooling resources to increase purchasing power may help:

• First-time home buyers get into a tight housing market
• Up the game for those interested in a larger property or a better neighbourhood
• Add a beneficial 'community' aspect of co-living in the same house (or on the same property)

Think you're easy to get along with? Over and above the idea of having roomies, if you're buying a house with friends, other couples, or even (partial?) strangers, entering into a mortgage with other people can be complicated and have serious financial repercussions if things go wrong. But under the right circumstances, successfully co-owning a home may get you in the real estate door months or even years earlier than going it on your own.

Maybe you already rent with people you like, or are confident a lawyer can set co-ownership rules well enough to make it work for you.

The real question is, can you get a lender on board? Here's what you need to know to help a co-ownership mortgage approval succeed.

Everyone will need to fit the (mortgage) bill.

The pros of a co-ownership mortgage mean you can combine savings for a bigger down payment, add everyone's income together for a higher pre-approval amount, and share the costs involved in buying and owning a home.

But before you can buy a home together, you'll need to get pre-approved by a lender.

Co-applying for a mortgage means that each party (whose income will be used to qualify) should have:

• Good credit standing (680 or higher)
• Reliable income sources for at least the past 2 years
• Qualifying debt-service ratios (less debt is better)
• A solid understanding of legal and financial obligations
• Legal plans in place for payment contingencies such as job loss, death, or if a co-owner decides to leave (a lender may ask for assurances of these details)

What type of joint mortgages are there?

A Joint Tenant structure is what married, common-law partners or close family members typically use, and they share equally the ownership of the property. In the event of death, ownership passes to the remaining owner(s).

Tenants in Common allows separate parties to jointly enter into a mortgage, and they each own a portion — which can be a different percentage based on financial contribution as outlined by a legal agreement. In the event of death, that share is passed on to a beneficiary or sold to the remaining owner(s).

Here's a comparison between Joint Tenants and Tenants-in-Common co-ownership options:

So, can you buy a home with just anyone?

As you can see from the above chart, you can technically enter into a co-ownership with just about any legal-age adult, depending on financial, legal and mortgage-qualifying details. If you can't get approved by a lender, the whole thing is a no-go.

How can co-owners get pre-approved for a mortgage ?

HERE'S THE TRICKY PART. Each person (or couple) whose income will be used should have a strong application. A lender will want an explanation of why there are multiple owners applying and to be assured they will receive their money if something happens — they may not be on board depending on the details. A lender who specializes in or works with co-ownership mortgages may be 'friendlier' to your application and ask fewer questions.

If someone has a weaker credit score or higher debt load, you may not be able to use them for the pre-approval or the final approval (or the lender may want further assurances). In this case, their income and down payment may still be used towards the purchase and other costs, with their financial obligation clearly outlined through legal means.

Having solid agreements in place to ensure everyone pays their part (and is entitled to their proper share) can help lenders assess your co-ownership mortgage for pre-approval.

Flexible mortgage options

Considering that more than one party will be part of the mortgage, having flexible mortgage options can help save money and time if a change is needed down the road.

For example, if someone gets married and wants out, or leaves town with a new job, a variable-rate mortgage will cost less in refinance penalties compared to a fixed-rate mortgage. But a fixed rate will also guarantee that the payments won't increase during the term, which may also be a deciding factor for your group.

Keep in mind that if someone does leave the agreement, everyone left on the mortgage will need to re-qualify. If they don't meet the lender requirements, the 'leaving' party will not be allowed to exit the mortgage agreement, will still be liable for missed payments, and will continue to carry the mortgage loan on their credit report.

Can you still get a good rate for a co-ownership mortgage?

Getting True North Mortgage's lowest advertised rates depend on your mortgage qualification factors and the federally-required stress test. But because a co-ownership mortgage is an 'outside the box' situation, it ups the possible risk for a lender, and the rate you get might be higher.

That doesn't mean you can't get a good rate, but it will depend on your situation — whether you'll need mortgage default insurance, and the qualifying details of everyone involved.

Can you still get access to first-time home buyer rebates and programs?

If you're a first-time buyer, but someone else on the mortgage isn't, you may have reduced access to provincial or municipal rebates, depending on the province in which the house will be purchased. Government programs and rebates may still apply. An expert mortgage broker can help you determine what will work for your situation.

So maybe you can. But should you buy with others?

Well, that's a whole other discussion. Finding compatible roomies to share your investment, and your life (for however long) can help turn your co-owning strategy into a successful venture.

The pandemic changed many things. How we look at our own spaces, who we want to share those spaces with, and how the affordability of homes may factor into our financial futures — and it has forced many to look at 'traditional' ideas, like owning a home, in a new light.

There's nothing wrong with challenging the status quo, and determining a different course for attainting home ownership. The important thing is to do it your way, for your situation (assuming a lender is onboard with that). One smaller step towards home ownership now may help you achieve your goals, later.

Thinking of co-homing? Talk to us.

Talk to us first to help you decide if a co-ownership mortgage will work for you.

Whether you're one, or many — we can take a look at the numbers, help you understand what docs and details you'll need to both pre-approve and then qualify for the mortgage you'll need. We can check your lender and rate options, for the right fit for your situation.

No matter where you are in Canada, we can help you figure it out. Drop by a store location, give us a shout, apply online, or click the chat bubble to get started.