Mortgages Made Manageable With Co-Ownership

Young Canadians seeking a mortgage know the drill – no credit rating, no collateral, and no down payment means no mortgage, at least according to most financial institutions. Add to that the extremely high cost of housing and you end up with a lot of 20 and 30somethings shut out of the market.

Consider the realities many of them face, according to recent reports in the Kitchener-Waterloo Record and AOLmoney Canada:

• Stats Can estimates that house prices rose 49.3% between 2001 and 2006.

• Since 2006, prices have jumped 15%, according to the Canadian Real Estate Association.

• Coming out of school, many young people end up with part-time or entry-level jobs with salaries that offer them no chance to save for a house or to establish a credit rating that may be necessary to secure a mortgage.

• For 76% of people aged 25 to 39, home ownership is a top priority, again according to Stats Can. Only 60% manage to actually buy a home.

What to do? Some people will use the services of a mortgage broker to obtain a mortgage through a private lender. These lenders tend to be more generous with first-time buyers who lack a long credit history.

Others are turning to co-ownership. According to Dianne Usher of Royal LePage J&D Division in Toronto, co-ownership is a trend that is “national and it’s emerging”.

Basically, co-ownership is the purchase of a home between friends or family members. Pooling their resources, they are able to secure a mortgage and purchase a home they otherwise could not afford. Here are a few examples of how it might work:

• Friends go together to buy a home in a higher-end neighbourhood. They may live there themselves and rent part of it out to help pay the mortgage.

• Family members may go together to buy a multi-unit house and live there in separate units.

• Parents and adult ch ildren may buy a condo for the son or daughter to live in while attending school out of town. After graduation, they can (hopefully) sell at a higher price.

Real estate professionals have also noticed a gender bias in co-ownership. Many women are choosing co-ownership, either to live in the house themselves or to rent it as an income property.

Some people pursue co-ownership because they see real estate as a better investment than stocks. Others do it to get their feet wet in the real estate market, using the co-owned home as a stepping stone to move into a home of their own in the future.

Whatever the reason, it is critical that buyers draw up an ownership agreement. Why? Relationships can come to an end. Job opportunities may force someone to move away. There must be some clarity on who is responsible for maintenance. Similarly, there must be clear direction on how mortgage payments are shared. Lastly, there needs to be a written agreement about how to terminate the arrangement in the event of one of the parties wanting out.

If you are considering co-ownership, get professional advice first. A mortgage broker can advise you about financing a co-owned home and a lawyer can make you aware of any legal concerns and prepare a co-ownership agreement.

For more information on mortgage brokers and mortgages in Canada contact a mortgage specialist at http://www.canadianmortgagesinc.ca/mortgage_brokers/