Family Mortgage - What You Need to Know
February 5, 2021 | Posted by: Ron Chan
Most of Canada is celebrating Family Day this coming February 16th (2021). While in Manitoba we instead recognize Louis Riel on the same day, this marks the perfect time to discuss something that may be on your mind - a family mortgage. What is a family mortgage? One where you pool resources from others outside of your immediate family, be it multigenerational (parents and adult children), between siblings, or cousins (etc.) in order to invest in a home. Is it a good idea? It absolutely can be, especially when it significantly increases your buying power. But first, consider the following.
5 Things to Consider Before Entering Into a Mortgage With Family
When it’s Your Parents
Young adults often seek a helping hand with both the downpayment and monthly mortgage by turning to their parents. It makes sense given that they are likely backed by a longstanding credit history and may have significant equity. For greater insight, please read our guide to why getting a mortgage with your parents can be a great way to enter into a mortgage.
When It’s Your Kids
On the flip side of the above, you may be the parents of adult children who have proposed the idea of getting a family mortgage. On the surface it may seems as if it’s just you doing them a big favor, but it can work for you and your legacy as well. It provides a great empty-nest investment opportunity, can establish multigenerational wealth, and can even deliver you with the dream vacation home that you’ve always wanted. View more on why getting a mortgage with your adult children may be a good idea.
Whether it’s a combined mortgage between parents, kids, siblings, or cousins it’s important to note that unless otherwise stipulated in a contract (more on this below) all co-owners are equally liable for the mortgage if one or more of the investors cannot pay, or wants to sell. This applies even when each of you holds proportionately different shares of the property’s equity.
Formal Joint Ownership Agreement
To avoid issues down the line, you should seek advice from a mortgage broker. They can help you collectively craft a formal agreement that can be taken to the appropriate governing bodies to establish a legal joint ownership contract. This may feel like familial version of a prenuptial agreement, but in the end it’s the only way to mitigate future conflicts that may arise.
Informal Ownership and Living Agreements
If the house is to be shared as a primary residence or vacation home, you should draft an informal agreement not only about use, but how you’ll make decisions about the property. How will you share the costs of maintenance, property taxes, utilities, insurance, upgrades, and unanticipated repairs? Be forward thinking when it comes to getting a family mortgage.
You probably still have a lot of questions about betting a mortgage with your ohana. There are certainly a lot of moving parts, which is why you need to bring in a friend for your family - a mortgage broker. As a family man Ron Chan understands the nuances of navigating mortgage and real estate relationships between relations. In addition, Ron will connect you to lenders who are more open to group borrowing agreements. Lets hop on a call together to discuss the steps for moving forward. Give Ron a ring at 204.290.9950.