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Before signing this mortgage agreement with a group of friends, there are a few things to keep in mind
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14.09.2021 • September 14, 2021 • 3 minutes read • Join the conversation 
According to a survey by RE / MAX, one in three Canadians is looking for alternative ways to finance their dream of owning a home. Photo by Brian Thompson / Brantford Expositor / Postmedia Network Files
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Canada’s hot housing markets over the years have made home affordability out of reach for younger Canadians, which means some Canadians will need to get creative to break a segment of the market.
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According to a survey by real estate company RE / MAX, one in three Canadians is looking for alternative ways to finance their dream home, such as multi-person apartments where a group of friends or family could pool their finances and get a mortgage approved. At least 13 percent of respondents are seriously considering group financing in order to be able to afford a home.
This option is not unknown. The 2016 Canadian census data found that multigenerational households, or houses of three or more generations, were the fastest growing housing category between 2001 and 2016, up 37 percent.
Everyone involved in the arrangement would either need to qualify for the mortgage or one person in the party would need to be able to qualify for the entire mortgage. Individuals who sign the mortgage could also have some liabilities, such as: B. student loans, car payments, consumer debt, etc. The lender would consider all of these liabilities and assess the risk they could take with the mortgage loan.
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Before signing this mortgage agreement with a group of friends, there are a few things to keep in mind.
“There is quite a bit of legal back-end to take care of …” Leah Zlatkin, LowestRates.ca expert and mortgage broker, told the Financial Post. “You probably want to get a contract with an attorney specifying who will own what percentage of the house and who will be contributing in what way. You also want to have an emergency plan. “
The contingency plan can serve two purposes: to give the group of borrowers a backup plan if a life event affects their ability to pay the mortgage (e.g. to make the lender more confident and secure when working with a group of individuals.
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This arrangement could also make it harder to find a lender willing to take on this as the paperwork grows. Zlatkin said a lender could typically go through five documents for a single borrower for a single property at a cost of, say, $ 400,000. For a group of individuals looking to take out a mortgage on the same property, each person would have to submit their own documents, which significantly increases the workload and lengthens the approval process for the lender, but not the rate of return the lender would get.
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Lenders can fit too, because the more people involved, the higher the risk that a person will want to change their life situation, change in the group, and leave the agreement. This multi-person mortgage generally increases the likelihood of something going wrong, so borrowers may not qualify for the best interest rates available.
If someone in the group decides to leave and the other remaining members agree to pay them back the equity they earned in the house, it will still get their remaining members in trouble.
“(They) either have to find someone to replace him,” said Zlatkin. “Or (they) basically all have to leave (their) home and sell it because (they) cannot afford to keep it.”
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Zlatkin added that there are risk factors for life events in this situation, as relationships can change and the individual’s ideas about their life situation can develop. However, there is a strong human component that should go into a person’s decision whether or not to pursue this arrangement.
“If everyone is very happy to be in the same situation in life that they are in, you have already lived together and already feel that this relationship is working: absolutely, why not?” Said Zlatkin. “But if you have the feeling that something could change … then you run into problems.”
• Email: [email protected] | Twitter: StephHughes95
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