Friends with (Housing) Benefits: The Do’s and Don’ts of Co-Owning a Home

Renting an apartment is expensive, and so is buying a house; but after a certain age, continuing to live with your parents may become… mundane. We all get to that point when we just need our own space, but unfortunately, if you’re single, there aren’t many options when it comes to saving on housing costs…unless you’re willing to mingle.

Renting a place with roommates is always an option, but there’s a growing trend among home buyers: buying a home with a friend. In 2017, a report from RE/MAX showed 41 per cent of Canadians would consider buying a home with a family member or roommate.

It’s no wonder Canadians are looking to split their housing costs in less-than-conventional ways; while the Canadian Real Estate Association reports a decrease of 4.9 per cent in the average housing sale price from December 2017 to 2018, the average Canadian house costs $472,000. Prices are even steeper in the country’s largest cities, with Vancouver and Toronto topping the list as being the most expensive in the country.

With those prices in mind, having a friend go splits with you on a house could be the perfect (or even only) way to break into the property market. But, as with any relationship, finding the perfect buying partner is key. While someone may be an ideal roommate, it doesn’t mean they’ll be your homeowning equal.

Set the ground rules with your buying partner

The first thing to do if you’re considering splitting a home with a friend is to figure out what you’re both looking for in this buying relationship. This includes looking at short-term, long-term, and some very basic goals together.

To get the conversation started, here are several key questions to ask:

• Does the location need to be near or between your workplaces?
• What are you looking for in a home? Do you need a large backyard? Equal-sized bedrooms?
• Do you have similar living habits and social lives?
• How long do you want to own this house together?
• Do your budgets match up? How much can each of you contribute to a down payment right now? And how much could you afford to pay per month for a mortgage?

Both you and your buying partner should create a list of needs and wants, separately, and then come together and compare to see how they match up.

It may be best to create a co-ownership contract, as well, with the help of a lawyer. You can decide how you’ll be dividing all of the home responsibilities, including chores and bills, and put a plan together if one of you would like to sell their share of the home before the other.

Be honest about your finances

It’s time to come clean about all your financial secrets: the good, the bad, and the ugly debt. For most people, buying a home is the largest financial decision they will ever make. You and your friend may decide to split the housing costs 50/50, or you could come up with a different arrangement (with the help of a lawyer) if you and your friend have different amounts of cash available for a down payment or different monthly incomes.

If you’re sharing a mortgage, your mortgage rate will also be tied to both your credit reports, so there’s no hiding if you or your partner have bad credit. By sharing a mortgage, you also face credit risks. If one of you falls behind in payments, then you’ll both be reported to credit agencies. This can also make it more challenging to get other loans – you’ll still appear to be responsible for the entire mortgage payment each month in the eyes of other lenders.

Create a contingency plan, just in case

No one wants to plan the end of a relationship just as it’s getting started, but like prenuptial agreements, planning ahead can save you from confusion and arguments later on.

In your co-ownership contract, you can decide what happens if one of you wants to sell your home sooner than the other. If you’re sharing a mortgage and the co-owner wants out, you will either have to sell the house or refinance the home under just your name and credit.

While it may be hard to think about, you can’t always plan for sudden changes like loss of employment, illness, or even death. Together, you and your buying partner should discuss the necessary protections you need to rest easy at night; life insurance and critical illness insurance can also help protect your investment.

Embrace the good things, too!

Buying a home with someone who is not family or a significant other can seem scary, but there are also plenty of benefits. If you find the right person to partner with, having that second income will make it easier to qualify for a mortgage and give you access to better rates, helping you save money. You’ll also be able to look into bigger or more expensive spaces since you’ll likely qualify for a larger loan, especially in areas such as Toronto and Vancouver.

There may also be some other cost-saving advantages; single parents often share child-sitting costs, and some senior Canadians invest in homecare options together to increase their well-being at home.

As with any relationship, being completely honest and open about what you’re looking for in a co-owning partnership is the most important part. And if it doesn’t work out with one person, there are still plenty of other potential home buyers in the housing market sea.

Want to know what kind of house you and your friend can afford? Use the mortgage payment calculator to figure it out today!

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