What Is Co-buying?
It is no secret that the real estate market in Toronto has become increasingly expensive and difficult to enter. This no longer only applies to the City of Toronto but now is spreading throughout the outer regions of the GTA and into neighbouring cities and towns.
As already seen in Vancouver and New York, the concept of Co-Buying is beginning to catch on in Toronto. In fact, it has been observed that 24% of the Millennials who are purchasing properties in the region are doing so by entering co-buying agreements.
Simply put, Co-buying is the sharing of property ownership by more than one person. In most cases, two or more people will enter the co-buying agreement to co-habitat in the purchased property. Some may do this for the purpose of investment.
Co-buying can help you enter the market earlier by leveraging the income and downpayment of multiple people versus a single individual. It can assist you in being able to qualify for a property of a greater value. Because the mortgage payments and property taxes are split it decreases your monthly payments along with all other costs of home ownership.
A Co-buying arrangement is usually made as a tenants-in-common contract which allows the property ownership to be divided into varying percentages. This type of contract permits the owners to will their shares to a person of their choice. These arrangements would be written through your lawyers.
Before embarking on this type of arrangement there are some aspects to understand. The most important is the fact that your mortgage lender will not recognize the division. Meaning, if one party does not pay their portion of the mortgage payment the lender will expect full payment regardless. Even if in the agreement your ownership and portion of the mortgage is 40% you will still be liable for the full payment should another party not pay. The group may consider putting three months of mortgage payments into a trust. This will assist in buying time to resolve the issue should one party be unable to pay their portion on a continuous basis. In order to have a recourse should payment issues occur you must have your lawyer draw up a co-ownership agreement which is to be signed by all parties.
Not only are you utilizing all parties’ incomes to help qualify for the purchase, but all of the debts will also be included. If a participant has a large debt load, regardless of their income, they may become an obstacle to the mortgage application. It is important that all of the participants are up front with each other in regards to their finances from the beginning of the process. Undisclosed debt or poor credit will impede the financing for your purchase.
The mortgage process for a Co-buying agreement is generally the same as a regular process. Most lenders will allow up to four people on a mortgage. Some will allow more. Some lenders will also allow different types of mortgages under the umbrella of one mortgage. Different options should be explored with your mortgage professional.
Given that there are more applicants for the mortgage the financing process will take longer. More documents must be reviewed and more circumstances have to be considered. Providing information and documents in a speedy manor will help keep the financing process proceed efficiently. It is important to note that all of the people on the title of the property have to be on the mortgage.
It is important to be well informed about all facets of this process. If done smartly a co-buying scenario can work well for all parties involved. For more information or questions please feel free to contact me
I was recently a panelist during a free information session on "The How-To's of Co-Buying". If you were unable to attend and would like to hear more about Co-buying, I'd be happy to share the material and information from this very informative session.
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