With the high prices of Toronto real estate, more and more would-be home buyers are pooling their resources to get into the market. Partnering with friends or family members for joint ownership of a property together might initially seem like an easy solution. It is a very real home buying tactic that has worked for many people.
Smart buyers are using all kinds of creative methods to achieve their goals. Partnerships and group purchases can take all shapes and forms. However, parent-child joint ownership of a house in Canada is by far the most popular option today.
For a young person looking to get a foothold in today’s real estate market, cooperative purchasing can be the best path. There are benefits for both the parent and the child, but there are also risks that everyone involved should understand.
(Disclaimer: Please regard this post for information purposes only, not legal advice. Joint ownership can present legal implications, so it’s important to run everything by an experienced real estate lawyer.)
Today, let’s weigh the benefits and challenges to determine whether joint ownership is something you should explore.
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What Is Joint Ownership?
Just like the name suggests, joint ownership is where multiple parties come together to fund the purchase of a property. This is standard practice between spouses. The arrangement is also quickly gaining in popularity between parents and adult children. Ownership between friends or siblings happens, but not as often.
Why is that? It’s critical to stay on the right side of real estate laws regarding joint ownership of property in Canada. This requires a high level of participation between parties, as well as good long-term planning and a lot of trust. Nevertheless, joint ownership of property opens up many possibilities for those who can make it work.
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About Shared Ownership Mortgages
Joint ownership of property with parents doesn’t just mean multiple names on the title. Unless the group can come up with enough funds to buy the house outright, you will need to qualify for a loan. Instead of taking out a mortgage in one person’s name, two or more will sign on the dotted line.
The financial burden for each party is lower, but this type of joint property ownership can also come with risks. Many people don’t realize that lenders qualify applicants based on combined liability. The cost of ownership is split, assuming each party acts in good faith. However, if one person defaults, everyone is 100% liable.
Think of the fallout if one person cannot keep up with payments. The other owners will be responsible for carrying the loan. This alone can add financial strain. In the worst case scenario, the person who falls behind neglects to inform the other owners, either out of embarrassment or other reasons. Well-intentioned or not, this can hurt everyone’s credit rating and make it harder to borrow money in the future.
Another potential drawback of joint mortgages is that all applicants’ financial backgrounds and standings are analyzed by the mortgage lender. So, if your joint onwership partner has a less-than-desirable debt history or credit score, your interest in the joint mortgage will be negatively affected.
Joint Ownership With Right of Survivorship
What happens to a jointly-owned property if one owner dies in Canada? It depends on how you and your co-owners decide to set up the title.
Joint Tenants
Under Joint Tenants, ownership automatically transfers to the surviving owner(s) after the other passes away. This is usually a spousal arrangement, but it can be set up between any group of people. If you decide to go this route, it’s important to understand that all parties have an equal right to possess the property. Everyone also enjoys equal interest and shares responsibility for the home.
Tenants in Common
Under Tenants in Common, each partner’s ownership is separate and distinct. Shares can also be unequal if one person puts up more for the down payment or carries more of the monthly costs. If one owner dies, their portion becomes part of their estate. It must then go through probate before being passed on to the heirs.
Can a Jointly Owned Property Be Sold by One Owner?
If the title is set up as a Joint Tenant, all owners must agree to sell the home. One person cannot act alone to list the property. However, they can sever the joint tenancy to revert to a Tenants in Common. In extreme situations, you can go to court to try to force the sale.
Since Tenants in Common means each share is separate, one owner can sell their portion of the title independently of the other. They can do so without seeking consent from the others, or even without their knowledge.
Buying Out Jointly Owned Property in Canada
Selling a property that is a joint tenancy is relatively straightforward as long as all parties agree that it is time to move on. If one owner wants to take full possession of the title, they can also come to an agreement with the others to buy out their share.
Tenants in Common also makes it fairly simple to buy out a cooperating owner as long as the buyer and seller agree on the price and terms. Complications can arise when one person wants to sell their share to an outside party. It can be difficult to find a buyer who is willing to settle for partial ownership, especially if they plan to use the home as their primary residence.
Before taking the plunge into joint ownership of a home, it is critical to speak with an experienced attorney so that each party fully understands their rights and responsibilities. If one owner already has an interest in an existing property, there could also be tax implications. A visit to a knowledgeable financial advisor may be in order.
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The Pros of Joint Ownership
No matter which way you look at it, there are many perks to co-owning a house with family or friends.
Joint mortgages open the window for real estate investment, and qualification can often be easier when there are multiple incomes funding the mortgage.
Additionally, the month-to-month operating costs as well as larger home maintenance costs of a co-owned house can be split up between the purchasing parties.
The Cons
While it’s easy to get wrapped up in the excitement of co-owning a house after reviewing the benefits, the tactic does come with its own unique set of cons, too.
Joint mortgages require a long-standing financial obligation between the buying parties, which can put a financial and social strain on the buyers’ relationships.
Remember that buying a home is no small commitment. The more people involved, the more potential there is for conflict and discord. Whatever you decide, clear expectations and communication are both essential for a satisfactory outcome.
Do you want to learn more about joint ownership of a house in Canada? Our West Toronto real estate agents help you achieve your dreams of homeownership. Reach out today at 416-769-3437 or email info@sidorovainwood.com with any questions.
