So, you're in love. Have you made the decision to purchase a home with your significant other? Congratulations!
Not to burst your romantic bubble--but there are things you should know. Important challenges need to be considered when buying a home with someone with whom you're not married.
Have you discussed what will happen if you break up after you've bought a home together? Heaven forbid!
Down Payment and Mortgage
It would be ideal if you could split the down payment and mortgage costs equally. Sharing the financial burden makes for a far less stressful relationship. You can afford a nicer home and by sharing costs, have lower down payments for both of you. However, because every individual's financial situation is different, the division is seldom equal.
A situation that can arise is, one person is able to pay half the cost of the purchase, but the other person has to finance a mortgage. The bank will insist that both purchasers co-sign the mortgage. Lenders generally insist that both owners take responsibility for the debt. Even though the person who took out the loan is paying the mortgage, the other partner is still responsible for making payments if they default for any reason. To find out what you and your partner can afford, try the REALTOR.ca affordability calculator.
A married couple will automatically be entitled to 50% of the home's value in the event of a split, whether listed as the owner or not. This will not be the case with cohabitating couples. It's crucial for unmarried couples to co-own a property they're both paying for, even if the finances are uneven. If only one person is listed on the title, contributions made by the other partner will be seen in the eyes of the law, as paying rent to the owner. In a common-law relationship where only one spouse is on the title, the other partner has no right to the home upon their separation.
Sign a cohabitation agreement
A cohabitation agreement is a legal document between two unmarried individuals who wish to live and own property together. It will protect their individual interests and assets in the event of a split. The cohabitation agreement will document the details of the down payment, title and mortgage. It can address how taxes, maintenance fees, utilities, and repairs will be divided.
What happens if you split?
It will be necessary to make it clear in your cohabitation agreement how you want the home value to be divided in the event you break up. Unromantic, I know. But consider it similar to a prenuptial agreement. In the event of a break up, you may choose to sell your home and split the proceeds 50/50. It is also an option for one person to buy the other partner out for fair market value. What if one of you passes away? Usually the surviving owner inherits the portion of the property belonging to the deceased. You will need to specify your wishes in the agreement.
Your support team
You and your partner will most certainly have a lots of questions. As experienced realtors, HomeLife Benchmark professionals can guide you through the minefield of tough decisions and find the ideal home to suit your needs. We are able to refer you to a knowledgeable lawyers to assist you in drawing up a cohabitation agreement, find the right mortgage brokers and home inspectors.
Be sure to educate yourself about Common Law in Canada, which can vary greatly by province.