The Greenhouse
by Pine

Can’t afford a mortgage on your own? Here’s what you can do

When it comes to applying for a mortgage, you can always apply with someone else.

You don't have to do it alone.

Made all the calculations and realized you’re still a little short to get approved for a mortgage in Canada? You’re not the only one. A single income, even one that’s considerably above the Canadian average and coupled with a great down payment, could still make it challenging to pass a mortgage stress test or qualify for a mortgage at all.

In these cases, a co-borrower through a joint mortgage or having a guarantor on your application could be the bridge needed to help you enter the real estate market and become a homeowner.

1. Apply with a guarantor/co-signer

If you aren’t jazzed about the idea of sharing home ownership or aren’t able to consider it as an option right now but have a trusted person by your side, you can submit your mortgage application with a guarantor. They essentially co-sign for the mortgage, and assume responsibility for payments if you’re unable to make them. 

Having a co-signer on board who your mortgage provider sees as being reasonably capable of assuming responsibility of your mortgage if you’re unable to at any point can also boost your chances of getting a lower interest rate.

2. Consider getting a co-borrower or co-borrowers

When it comes to applying for a mortgage, you can always apply with someone else. Just like raising a kid, sometimes it really does take a village. In this scenario, your mortgage lender will factor in all the incomes and credit scores–because you need at least a score of 680–of all applications who are qualifying for the mortgage. 

It’s not only a viable path to home ownership, but it can also help you receive a lower interest rate, qualify for a larger mortgage, and alleviate some of the other expenses involved in owning a home by splitting that cost up and dividing the risk involved between each owner.

It’s important to remember the financial situation of each person involved, because depending on how you’ve decided to set up the payments, If any of the co-borrowers can’t make their mortgage payments, the payments still need to be made. If this happens, you and the other co-borrower–or co-borrowers, if you decided to qualify with more than one person–will be held responsible for paying the mortgage. 

Now, how you choose to break up the ownership of the property is up to you and your co-borrowers–and is usually done with your real estate lawyer, because you have a few options. 

Get a joint tenant mortgage arrangement

A joint tenant mortgage is typically what you see with couples and spouses who purchase a home together. With this type of mortgage, the home is split equally so each co-owner owns an equal share of the property. 

Since ownership is equal between everyone, decisions to sell, renovate, or refinance the home have to be agreed upon and signed off by each owner. It’s also important to note that when one of the co-borrowers passes away, the other co-borrower can get the property. 

Get a tenants-in-common mortgage arrangement

The alternative to a joint tenant mortgage is a tenants-in-common mortgage. With this type of mortgage, everyone owns a percentage of the home, but it doesn’t need to be split equally.

Usually, the percentage is worked out based on the amount of money each person puts toward the down payment. 

For example, if someone puts forward 40% of the down payment or will cover 40% of the expenses related to home ownership, they’ll usually get a 40% share of the home. However, every mortgage is unique and how this type of mortgage is split up depends on how everyone involved agrees to approach it.

It’s highly recommended you consult a real estate lawyer when considering a tenants-in-common mortgage to help ensure everyone is on the same page and understands what is involved, and to ensure the agreement is legally binding and what everyone has agreed to is laid out on paper.

And just like a joint tenant mortgage, co-borrowers can’t unilaterally decide to sell, refinance, or renovate the home without the approval of the other borrowers. However, there are options available to move forward with decisions like this even if everyone doesn’t agree. For example, the co-borrower who does agree can sell their share to the other(s) or legal action could be taken depending on the particulars of the agreement.

However, unlike in a joint tenant mortgage, when it comes to a tenancy-in-common mortgage agreement, if one co-borrower passes away, the percent of what they own in the home goes to their estate or beneficiaries as indicated in their will.

While it might feel a little complicated, getting a co-borrower or guarantor can be great options to enter the housing market–but it’s a decision that shouldn’t be taken lightly. If you’re considering a joint mortgage, connect with one of the trusted advisors at Pine to find the best option for you.

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