When it comes to buying a home in Canada, it is getting more and more difficult to do on your own. As property values continue to climb in different areas, it’s also becoming increasingly more hopeless to find a place on your own. That is why you may be considering buying a home with a friend or a group of people. In theory, buying a house with a friend or multiple co-signers is great in many ways, but it does however have its downfalls. If you are planning on buying a house or property with more than one person, these are the pros and cons you need to consider before jumping into one of the biggest financial investments you’ll make in your life.
Pro – Easier to get approved
When you are purchasing a house in Ontario, you need to be sure your expenses are in order and that you are in good financial standing. You also need to have a certain amount for a down payment which varies depending on the price of the house you are looking at. In some cases, having enough saved for a down payment on your own can be difficult. But the more people involved in sharing that down payment, the easier that number is to reach.
Con – Risking your credit score
Your credit score plays a large role when getting approved for a mortgage. As long as you and the people you choose to buy a house with are in good standing when it comes to their credit and you meet the other financial requirements, it will increase your chances of getting approved. However, you need to be sure that the people you pick to share a house with financially are going to keep their end of the deal and make their payments on time. If they do not, you as well as anyone else involved will be responsible for paying the amount owing which can therefore take a toll on your credit score ranking.
Pro – Shared expenses
Beyond the monthly mortgage payments, there are many other expenses involved with buying a house like your closing costs. On your own, this can be a huge bill to pay. But dividing these expenses between other people, that price tag becomes a lot more realistic when comparing it to your income.
Con – Trouble applying for other loans
Having a large loan such as a mortgage on your report could make it trickier for you to qualify for other loans. Because you are responsible for the entire mortgage, your debt to income ratio may increase and therefore you may not be approved for certain loans. When applying for a loan with a spouse, the solution is usually to apply together, but if you’re buying a house with a friend, you may not want them applying for different loans with you.
Pro – Home equity gains
The longer you and your friend(s) own the house and keep making the monthly mortgage payments, the more equity everyone builds. In most cases when a person and a friend buy a house together, it normally isn’t a permanent arrangement. Therefore, when you and your other co-owners decide to go your separate ways, you will be walking away with cash in your pockets.
Con – You and your other co-owners may have different intentions
Before you start house-hunting or sign any papers, you need to make sure that you and anyone you plan on buying a house with are on the same page about what the intentions are. How long does everyone plan on owning the house for? Do you plan on living in the house or renting it out? Does everyone clearly understand the importance of paying bills on time and the responsibility of maintaining a house properly – especially if you’re also becoming co-landlords? Buying a house steps you into a world that is very different from renting. There is a lot that needs to be reviewed between you and whoever you choose to own a house with.
The bottom line is: as long as you 100% trust the person (or people) you plan on owning a house with and you’ve all carefully agreed on what the intentions are, then it’s time to get ready to start buying a house together. Whatever you decide in terms of how long to keep the house and whom to buy it with, be sure to have a lawyer draft a legal agreement to outline your deal and what happens to the house should someone not pay their share or wants to get out early. To help you get started and to get you approved for the mortgage you need, give me a call as soon as possible! I, Darren Robinson, would love to help you and your future co-owners navigate the financial expectations of buying a house together and getting approved for a mortgage. As your first step in the process, give me a call today at (705) 315-0516 to schedule a virtual meeting and together we’ll make this dream a reality!