Most people buy a home with someone else., 62% of Canadians surveyed said they bought their homes with a spouse or partner, while only 35% said they bought on their own.
Not only is it easier to save up your down payment when buying with a partner but it also makes monthly carrying costs like your mortgage and utilities easier too. There are many different scenarios people enter into when buying together and it can be hard to navigate the complications of buying and financing a home together.
Here are some things to consider when buying and living with someone else.
Common buying scenarios
Although the majority of buyers do buy with others, popularity is growing outside of traditional spouse or partner scenarios, to include parents, siblings, and friends. This can happen in a number of different ways:
Parents invest: Not only do 22% of parents cover part or the entirety of down payments for their children’s homes, many also pay the mortgage payments and allow their children to live rent-free. This typically occurs during university years or for recent grads. In this scenario, parents would likely keep 100% of the ownership, although they could pass ownership of the home to their children when they’re able to pay the mortgage payments.
Parents move in: In some cases, parents help with the down payment or mortgage payments and then occupy a part of the home. In this case, the home value would be shared, and can depend on how the down payment and monthly costs are divided.
Buy with a friend or sibling: In expensive real estate markets it’s becoming more common to buy with a friend or sibling. The easiest way to go about this is to split everything 50/50, including down payment, mortgage payments, and expenses; either way, be sure to draft a cohabitation agreement.
When buying a home and living together, it’s a good idea to have a cohabitation agreement written up by a real estate lawyer.
A cohabitation agreement sets out the rules of the purchase, setting expectations and arrangements between the buying parties who will live together.
It’s up to the two (or more) individuals buying to decide what to include in the agreement.
Here are a few examples…
Dividing up ownership of the home: Who owns what percentage of the home? How is it divided if we sell? If one person pays 80% of the down payment—or 80% of the mortgage payments—do they own 80% of the home? It’s important to have this in writing from the beginning and to discuss this with your partner; if you part ways or decide to sell, it’s a good idea to know exactly what to expect. Surprises are never pleasant in home sales.
Expenses and mortgage payments: If one person pays more of the down payment, should they pay less of the mortgage payments? Is one person paying less of the down payment and the mortgage payments because of a lower income? In a roommate situation, does the person who has the master bedroom pay more of the carrying costs? This should also be spelled out, to eliminate arguments once everyone has moved in.
Minimum time to sell: What if one person is expecting to sell the home in two years and the other person wants to wait at least 10 years? Write in a clause that has a minimum length of time before selling the home is allowed.
Cohabitation agreements can also be drawn up when one person moves into another person’s home. It can include rent, expenses, or even asset splitting.
Renting a portion of your home
When you have a roommate living with you (meaning not renting a separately enclosed portion of the house), you need to lay out guidelines. When one person is paying the other rent, there are important considerations that should be addressed in a rental agreement like the ones below:
Is the rent going toward the mortgage? Depending on your relationship with the renter, they might believe their rental payments are paying a portion of your mortgage principal, and they are therefore entitled to a portion of the sale of the home. Alternatively, rent can be just that, simply allowing the renter to have a roof and a home, but not gaining any ownership rights by doing so.
Is the rent you’re charging at market value? If you’re charging rent above market value, the renter could expect a return upon leaving or on the sale of the home. Do your research when choosing an amount to charge your roommate.
Should the renter contribute to renovations? If you renovate your kitchen and the renter contributes money, does this mean they are entitled to a portion of the proceeds when selling the home?
If you are in a relationship with someone and live with that person for 12 consecutive months, you’re in a common-law relationship. According to the Family Law Act in Ontario (and similar acts across the country), property you bring into the relationship would still be yours when the relationship ends.
The rules set out in the Family Law Act in Ontario (and similar acts across the country) do not apply to common-law relationships. When you separate, the only material possessions you have to divide or dispute are those which were purchased by both parties—like a car or major furniture, for example.
When you get married and move into a home together, your home is then called a Matrimonial Home. This occurs regardless of whether one or both people are on the home’s title, and the home value is divided 50/50 should the marriage end. A prenuptial agreement could nullify the matrimonial home, if it’s included in the agreement.
Your lives affect one another
Whether you’re living with a spouse, family, or a buying partner, the most basic point is often ignored: your lives now affect one another. In a partnership, people bring in opinions on how best to live in a number of areas, including dividing bills, common space, buying things for the house, etc. Buying the home and paying the mortgage is complicated, but so is living with another human being.