Published August 22, 2016 • 3 Min Read
Lisa Fougere has more experience in real estate than most young moms. While she currently owns her home in Lake Country, BC, she previously shared mortgages with her parents who rented properties, and one ex. At the time, getting a mortgage wasn’t something Fougere could do solo—and she is not alone. She is part of the growing trend of buyers opting to share a mortgage with friends or family.
“We’re seeing the next generation eager to get into the market, even if that means exploring alternate options like buying with family or a friend,” says Erica Nielsen, vice-president, Home Equity Finance, RBC.
The Annual RBC Home Ownership Poll revealed that 43% of 18 to 24 year olds say they are considering purchasing a home in the next two years, up from 34% in 2015; however, young buyers are nearly 25% more likely to consider purchasing a home with a friend or family1.
While this might seem like an unusual arrangement to some, disrupting traditional models of ownership could be considered a generational shift. For example, 18-to-34 year olds have embraced sharing vehicles with services like Zipcar and sharing work spaces via startups like ShareDesk. With continued increases in rental and home prices, these new models may provide new ways for young, first-time homebuyers to enter the market.
While Fougere says her own experiences have left her with, “a feeling of good fortune,” she suggests making sure each party is on equal footing from the start.
“We’re seeing the next generation eager to get into the market, even if that means exploring alternate options like buying with family or a friend”
Erica Nielsen, vice-president, Home Equity Finance, RBC
“I would suggest anyone going through this to put a plan together in writing,” she says. “Make sure to get your name on the title. Make sure you cover details about a possible future sale, and who will have the final say.”
Nielsen offers the following tips to homebuyers considering purchasing with a friend or family member:
1. Get on the same page
Open the dialogue on your absolute must-haves. There will likely be some different items on each of your lists so work together to come up with one list that you can both agree on.
2. Stress-test for affordability
Try out different financial scenarios to see how much you can really afford. Talk about what would happen if one of you lost your job or had a change in financial circumstances, and come up with a plan.
3. Get it on paper
You both might agree on how to handle the home purchase in theory, but life and relationships change, so having a contract in writing is key to solving disputes going forward. Create a simple agreement that outlines your arrangement including what costs each party are responsible for, and don’t forget:
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Utilities
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Maintenance
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Moving costs
4. Have an exit strategy
Include in your agreement how you will deal with the property if one party wants to sell.
While interest in owning a home grows for the next generation, what home ownership looks like will continue to change, and though non-traditional ways of buying a home can potentially ease the financial burden, getting on the same page with friends or family up front will make all parties feel more in control of their finances.
Sources:
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The Annual RBC Home Ownership Poll is conducted by Ipsos from January 28 to February 4, 2016 on behalf of RBC, through an online national survey of 2,000 Canadians ages 18+.
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Sean Lough is an editor and writer who’s worked with Bloomberg, WSJ.com, MarketWatch and Seeking Alpha.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
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