Becoming a homeowner is a huge accomplishment! For many, it's a responsibility that isn’t taken on alone. Co-owning a home is a great and effective way to share the costs and responsibilities of homeownership, and potentially get you into a home and building equity sooner than you could have on your own.
But what does it mean to co-own a home and what can you expect?
Whether your companion is a partner, spouse, friend, or family member, the following will get you thinking about how your joint homeownership will work.
What Does It Mean to Co-Own a Home?
When you decide to buy a home with someone else, you’re both signing on the dotted line. You will be equal owners of the property. Both names will be on everything, meaning you share equal responsibility. This remains to be true even if you’re not going to split the cost of the home equally.
It is essentially like you are one person – this means you are both entitled to the same rights and responsibilities that come with the home.
Share The Costs
First and foremost, you’ll need to come up with a down payment for your new home. Together, you can each determine how much you can afford for a mortgage on your own, then reach an agreement for contributing to your down payment amount. With both parties contributing, you may opt to get a home with a little more space to spread out. Alternatively, it can help you to put down a larger payment of 20% or higher in order to avoid CMHC mortgage insurance fees.
Keep in mind there are other expenses involved in buying a home, as well as utility costs when you move in. You'll get to divide these costs fairly, which is another benefit of joint ownership. It's smart to come to an agreement about how all of these costs will be divided before you even begin house hunting. Consider coming up with a monthly budget worksheet to keep things on track moving forward.
Power in Numbers
For some, the dream home they want may seem just out of reach. Having a co-owner or co-signer can bridge that gap and allow both parties to enter the world of homeownership, often much sooner than they might have been able to individually!
Lenders use two formulas to determine your ability to afford a mortgage – gross debt service ratio (GDS) and total debt service ratio (TDS). When you calculate GDS, it shows the percentage of your gross income required to cover housing costs including mortgage payments, property taxes, and heating. Your TDS will calculate the same, but takes into account additional debts like car payments and credit card debt. According to CMHC guidelines, your GDS cannot exceed 35% and your TDS cannot exceed 42% in order to qualify for a mortgage.
So while you may not qualify alone, two incomes combined offers you more negotiating power and the ability to apply for a bigger loan. You may even find you're able to lock in a lower interest rate; it helps if both parties have a good credit score as well. As you navigate the new home buying process, having a co-pilot can instantly make you feel more confident and secure in your decisions.
Beyond the division of costs, you may also like to divide responsibilities. Things like home maintenance, regular cleaning, and even cooking, are less of a burden when it's a team effort. As your home begins to take shape, you can bounce design ideas off one another and get inspired! You can share recipes and come up with a cleaning schedule to keep things in order. Nothing will have to be faced alone, and this can be especially attractive if you're home buying for the first time. In any case, owning a home is much more manageable as a pair.
Co-ownership is a beneficial way for two people to get a home they really love, and it's nice to take on the associated responsibilities as a team. But remember, as you lock arms with another to venture down the road to home ownership, you’re also both locking into a contract. Ironing out the details from the beginning will allow you to focus on the most rewarding part – sharing memories in your beautiful new shared home.