Sharon  Mason

Sharon Mason


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Canadians consider splitting a mortgage with friends. But it's complicated.

Before signing that mortgage agreement with a group of buddies, there’s a few things you should take into consideration

Canada’s hot housing markets have been pushing home affordability out of reach for younger Canadians over the years, meaning that in order to get a piece of the market, some Canadians will have to get creative.

According to a survey by real estate company RE/MAX, one in three Canadians are looking into alternative ways to finance their dreams of home ownership, such as multi-person housing, which could have a group of friends or family pool together their finances to get approved for a mortgage. At least 13 per cent of those surveyed are seriously considering a group financing option to afford a home.

This option isn’t unheard of. The 2016 Canadian Federal Census data found that multi-generational households, or homes with three generations or more, were the fastest-growing housing category between 2001 and 2016 with a boost of 37 per cent.

Everyone involved in the arrangement would have to either qualify for the mortgage, or one person in the party would need to be able to qualify for the entire mortgage. People signing onto the mortgage could also have a few liabilities, such as student loans, car payments, consumer debt, etc. The lender would account for all of these liabilities and assess what risk they could hold over the mortgage loan.

Before signing that mortgage agreement with a group of buddies, there’s a few things you should take into consideration.

“There’s quite a bit of a legal back-end that you need to take care of…” Leah Zlatkin, expert and mortgage broker, told the Financial Post. “You’d probably want to have a contract with a lawyer indicating who owns what percentage of the home, as well as who’s going to contribute and in what way. You’d also want to have a contingency plan.”

The contingency plan can serve two purposes: give the group of borrowers a back-up plan if there’s a life event that impacts their ability to pay for the mortgage (such as job loss or one person in the group leaving), as well as giving the lender more confidence and certainty in working with a group of individuals.

This arrangement could also make it more difficult to land a lender who is willing to take this on, given the increased size of the paperwork. Zlatkin said that a lender could typically go over five pieces of documentation for a single borrower on a single property priced at, for example, $400,000. With a group of individuals looking to set up a mortgage for that same property, each individual would have their own documents to file, greatly increasing the workload and lengthening the approval process for the lender, but not increasing the return the lender would receive.

Lenders may also pass given that with the more individuals involved, the higher the risk that an individual would want to change their living situation would change in the group and leave the arrangement. This multi-person mortgage generally increases the opportunity for things to go wrong, so the borrowers may not qualify for the best rates available.

If someone in the group decides to leave and the other remaining members agree to pay him back the equity they’ve earned in the home, it still puts their remaining members in a pickle.

“(They) either need to find somebody to bring in who could replace him,” said Zlatkin. “Or (they) all basically have to leave (their) home and sell it because(they) can’t afford to keep it.”

Zlatkin added that there are life event risk factors in this situation, given that relationships change and individuals’ ideas for their living situation may evolve. However, there is a strong human element that should factor into a person’s decision of whether or not to pursue this arrangement.

“If everybody is very happy to stay in the same life situation that they’re in right now, you’ve already lived together and you already feel like that relationship works: absolutely, why not do it?” Zlatkin said. “But, if you feel like there’s any risk that something could change… then that’s where you encounter problems.”

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