Joint Mortgages: Buying a Home with Friends or Family

In Ontario’s challenging real estate market, the dream of homeownership can feel out of reach for many. Sky-high prices have made it incredibly difficult to save a down payment and qualify for a mortgage on a single income. In response, a powerful and creative solution is becoming increasingly popular: co-buying. More and more, friends, siblings, or parents and children are pooling their resources to get into the market together.

A joint mortgage with friends or family can be a brilliant strategy, but it’s a business partnership as much as it is a living arrangement. A successful co-ownership is built on a rock-solid legal foundation, not just trust. This guide will walk you through the critical components of a successful co-buying journey. We will explore the crucial legal difference between Joint Tenancy vs. Tenants in Common, detail the non-negotiable Co-Ownership Agreement, and stress the importance of planning your Exit Strategy from day one.

Successfully navigating a joint mortgage requires both expert financial and legal advice. At 360Lending, our team can structure the complex financing, but we also believe in empowering you with the knowledge to protect your investment and, most importantly, your relationships.

Why Co-Buying is on the Rise

The primary driver behind the co-buying trend is affordability. In a market where the average home price requires a substantial income and down payment, partnering up provides two major advantages:

Increased Borrowing Power: By combining two or more incomes, your collective ability to qualify for a mortgage increases dramatically. A lender will assess all incomes together, allowing your group to get approved for a much larger loan than any individual could on their own.

A Larger Down Payment: Pooling your savings allows you to make a more substantial down payment. This can help you avoid the cost of mortgage default insurance (by reaching the 20% threshold) and reduces the size of your overall loan, lowering your monthly payments.

Co-buying transforms homeownership from an individual struggle into a team sport, making it a viable option for many who would otherwise be stuck renting.

The Decision: Joint Tenancy vs. Tenants in Common

When you buy a property with other people, the way you take title is the most important legal decision you will make. It determines what happens to your share of the property if you pass away and has significant implications for your estate. There are two main ways to structure co-ownership in Ontario.

Joint Tenancy: The Automatic Transfer

In a Joint Tenancy, all owners have an equal share in the property, and there is an automatic "right of survivorship."

How It Works: If one owner dies, their share of the property automatically and immediately transfers to the surviving owner(s). This process bypasses the deceased person's will and avoids probate fees. The last surviving owner becomes the sole owner of the entire property.

Who Is It For? This structure is almost exclusively designed for married couples or long-term common-law partners. The automatic right of survivorship aligns with the typical intentions of a spousal relationship.

Why It's Risky for Friends or Family: Imagine two friends buy a house as Joint Tenants. If one friend dies in a car accident, their 50% share of the home automatically goes to the surviving friend. The deceased person's family—their parents, siblings, or children—would receive nothing from their largest asset. This is rarely the intended outcome and can lead to devastating financial and legal consequences for the deceased's family.

Tenants in Common: The Safer Choice for Co-Buyers

In a Tenancy in Common agreement, each owner has a distinct, individual share of the property, and there is no right of survivorship.

How It Works: As Tenants in Common, owners can have unequal shares. For example, if one person contributes 60% of the down payment and the other contributes 40%, you can register your ownership on title as a 60/40 split. Most importantly, if one owner dies, their specific share of the property does not automatically go to the other owner. Instead, it is passed on to their estate and distributed according to the instructions in their will.

Who Is It For? This is almost always the correct and safer legal structure for friends, siblings, a parent and adult child, or any group of non-spousal partners buying property together. It ensures that each owner's investment is protected and can be passed on to their chosen heirs.

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Non-Negotiable: The Co-Ownership Agreement

If choosing the right way to take title is step one, creating a comprehensive Co-Ownership Agreement is step 1A. This is the single most important document for protecting your investment and your relationship. While you may be the best of friends today, life circumstances can change unexpectedly. This legal document is the "rulebook" for your partnership, outlining how you will manage the property and what will happen in any number of future scenarios.

Your agreement, which must be drafted by a real estate lawyer, should be seen as a business plan for your property. It must clearly define:

Ownership and Contributions: The exact percentage of the property each person owns, and a record of the initial down payment and closing costs each person contributed.

Financial Responsibilities: A clear breakdown of how monthly expenses will be shared. This includes the mortgage payment, property taxes, home insurance, utilities, and a budget for ongoing maintenance and repairs.

Decision-Making: How will you make decisions about the property? Will it be a majority vote, or will unanimous consent be required for major decisions like significant renovations?

House Rules: This section can cover the day-to-day realities of sharing a home, such as rules regarding overnight guests, pets, common area cleanliness, and responsibilities for chores.

The Exit Strategy: This is the most crucial part of the agreement. Life happens—people get married, take jobs in other cities, or simply decide they want to move on. Your exit strategy clause must detail exactly what happens when one owner wants to sell their share. It should include:

Right of First Refusal: This gives the remaining owners the first right to buy out your partner's share before it can be offered to an outside party.

Buyout Price Determination: How will you determine a fair price for the buyout? Will it be based on two or three independent appraisals?

Timeline: A clear timeline for how long the remaining owners have to secure financing for the buyout.

Forced Sale: What happens if the remaining owners cannot or do not want to buy out the departing partner? The agreement should outline the process for selling the entire property on the open market.

How Lenders View a Joint Application

When it comes to the mortgage itself, lenders have a very straightforward view of a joint application. Regardless of your 60/40 ownership split or your detailed co-ownership agreement, the bank sees all applicants as one entity.

Every person on the mortgage application is considered "jointly and severally liable" for the debt. This means that each of you is individually responsible for 100% of the mortgage payment. If one person stops paying their share, the lender can demand the full payment from the other owners. The lender will assess the credit score, income, and debts of every single applicant to ensure the group as a whole can comfortably afford the payments.

A Partnership That Needs Protection

Buying a property with friends or family is a brilliant and practical solution to the affordability crisis in Ontario. A joint mortgage with friends or family can be the key that unlocks the door to homeownership.

However, it must be approached with the seriousness of a business partnership. Trust and friendship are the foundation, but a comprehensive Co-Ownership Agreement and the correct title structure (Tenants in Common) are the legal walls that will protect your investment and your relationship for years to come. The cost of getting proper legal advice at the beginning is a tiny price to pay for the security it provides.

Our team at 360Lending can expertly guide you through the financial side of the equation, structuring a mortgage that works for your group. At the same time, we will always insist that you work with a qualified real estate lawyer to build the legal framework that will ensure your co-buying journey is a success story.

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