While there are definite benefits to buying a home with a friend or relative (namely, being able to buy sooner than you would on your own), there are definite disadvantages to be aware of. If you’re looking into co-buying in Canada and are unsure of the fallbacks, here’s what you should consider before signing any papers.
It‘s harder to go your separate ways. While it would be nice to think your friendships will last forever and everything will remain smooth for the duration of your mortgage, the reality is there are many reasons why one party in this partnership may need to opt out early. Work, illness and new relationships can all affect one’s ability and interest in maintaining this partnership. Since both parties are on the mortgage, the only options for separating and keeping the property are for one to buy the other out—which is rarely an option. More than likely, if one person wants out, it will require selling the property.
Their financial issues become yours. If your co-buyer suddenly loses their job and is no longer making their payments on time, you are reported together to the credit agencies—meaning your credit will be affected negatively even though you are making your payments on time. This is why it’s important to treat this as a business transaction. You may have an excellent relationship with your best friend and feel like making this purchase together is a smart move, but if you are at all unsure about their work history or potential for late payments, it might be better to back away. The last thing you want is to have your credit score ruined because of someone else.
It will affect your debt-to-income ratio. While you will only be responsible for half of the mortgage payment, the creditors will include the entire mortgage in your total debt for both partners, not just the half you are paying. This means the debt-to-income ratio will be larger for both parties than you might have realized. This can make it harder to secure other loans you might want or need.