On July 1, 2020, the Canada Mortgage and Housing Corp (CMHC) changed the rules around mortgage insurance, making it more difficult for some would-be buyers to qualify for a CMHC-backed loan.

Barriers to entry into Canada’s hottest property markets such as Vancouver and Toronto are forcing some Canadians to consider co-ownership with an unrelated party (friend) – just to get onto the property ladder. Consider these five things before buying a property with a friend or two:

1. Co-ownership type

You can co-own a home as joint tenants or tenants-in-common. Typically, the term tenant describes a person who rents or leases property. For an estate owned by more than one person, however, a tenant is a co-owner. With joint tenancy, each person has an interest in the investment, and if one owner, god forbid passes away, their share of the home goes to the other owner(s). In a tenants-in-common arrangement, each tenant owns a portion of the property, which becomes part of their estate when they die. Whether registering as joint tenants or tenants-in-common, all owners on the title will need to sign any mortgage, and there can only be one lender. From a lender’s standpoint, every co-owner is 100% liable for the mortgage. Therefore, if one buyer defaults or forgets to make a payment, everyone’s credit scores will be negatively impacted.

2. Legal co-ownership agreement

Any co-ownership agreement should specify the percentage each person has, which — if you aren’t splitting ownership equally.

3. Lending challenges

Some lenders don’t care how the title of a property is split up, whereas others may want everyone to have equal ownership depending on who’s on the application. For those lenders requesting equal ownership, they will look at each person’s finances before recommending how any deal should be structured. Challenges applicants may face include; income levels, debt levels, credit scores etc.

4. Mortgage flexibility

Co-buyers might expect to spend several years living together, but individual circumstances may change sooner than that. Life happens. We recommend choosing a mortgage term wisely so that the penalties are smaller if you need to break your mortgage early.

5. First-Time Homebuyer Incentive

Whether purchasing with friends, family or a spouse, the First-Time Home Buyer Incentive benefits buyers based on their share of the property, even if co-buyers do not qualify. Some restrictions do apply on these incentives.