In a tight housing market, it can be tough to come up with the cash you need for a new home. Many Canadians looking for new alternatives are having to get creative. For some folks, it may be as simple as finding friends or family to take the journey with them, or sharing their homes with others.
It's not often discussed, but any adult can buy a home with any other. Those individuals become tenants in common in the property.
Sharing the mortgage may sound like a hassle, but that debt can be formally split according to how much debt each person wants to incur. Albeit, each mortgage applicant is wholly responsible for payments if the other defaults.
Tip: We highly recommended speaking with a lawyer to set up such a co-ownership arrangement, especially when it comes to actually living in the space. Things can get tricky if one person wants to sell their interest or move before the other.
However, co-owners don't always have to reside in the same house. Family members, like Mom and Dad, can contribute part of the down payment and be non-resident co-owners (or they don’t need to be owners at all).
In some cases, a buyer that doesn’t qualify for a traditional mortgage can arrange financing through the seller instead. The owner of the property agrees to sell to the buyer in exchange for monthly payments. This is called "seller financing” or a “vendor take back mortgage.”
Typically, the title is immediately transferred to the buyer and the seller registers a mortgage on the property. These arrangements usually only last for a short period of time, perhaps a couple of years. That gives the buyer time to look for lower-cost traditional financing.
If it sounds a bit risky, it sometimes is. The Real Estate Council of Alberta recommends working with a licensed agent or broker for these deals. And buyers should look out for red flags, like onerous mortgage terms or not having their name on the title immediately. Having a real estate lawyer carefully review the mortgage contract is the best protection.
Many Canadians struggle to buy any property at all -- let alone a home with an extra suite. But if you can go a bit bigger, the rental income can make a big dent in your mortgage. If you’re lucky, the monthly rent could cover most of your monthly housing payments.
In this case, it's also important to do a bit of pre-investigation. Most notably, see if municipal regulations allow you to rent out space in your home, especially if the suite is not self-contained. Also, you'll want to take into account the tax obligations of becoming a landlord and collecting rental income.
Tip: Take out a mortgage that you can actually afford, with or without rental income. That way, you’re safer if the rental unit stays vacant for a while.
Before you begin to shop, use a mortgage affordability calculator to get a better picture of what you can afford. Be realistic about your finances and set yourself a viable budget. And always shop online for the lowest mortgage rates to maximize your monthly savings.
With a little creative thinking, obtaining your first home might be more realistic than you think.