Mortgage Before Marriage: Buying a Home with a Partner

A growing number of Canadian couples are choosing common-law partnerships over marriage. According to recent census data, nearly 20% of households in Canada now include a common-law couple, and studies by Canadian mortgage insurers indicate that a quarter of all couples with mortgages are now unmarried.

While it is certainly not the same as marriage, purchasing a home with a romantic partner is a major commitment and should be considered with the same seriousness as a marriage proposal. Taking on shared debt such as a mortgage will tie you to your partner in a new way and could impact you financially for the rest of your life. Each of you must understand the pressures and risks that this change in your relationship will involve. Do you know whether your partner is good mortgage material?

Shared Debt

Sharing a mortgage is a profound commitment. When two people co-sign a mortgage together, each individual agrees to repay the full amount of the loan. This means that if one partner stops making payments, the other is responsible for the full mortgage. Co-signing is an act of trust.

Before you decide to buy a home as a couple, you should share all financial information with each other, including credit scores, debts, annual income, and other financial obligations. You will have to disclose this information in your mortgage application eventually, so sharing it with each other ahead of time will give you a strong sense of your shared financial picture and help you to assess whether you are ready to become financial partners. Have an honest conversation about your financial habits and priorities, and consider how will you share costs related to home ownership such as:

• The mortgage down-payment, a minimum of 5% the purchase price
• Fees, including mortgage insurance, lawyer's fees
• Your monthly mortgage payment and interest
• Utilities such as heat, electricity, and internet
• Home maintenance and upgrade costs, often estimated to be at least 1% of your purchase price per year

You may choose to open a joint bank account into which you will each regularly deposit your portion of these expenses. If you and your partner don't have the same income or assets, it may not be possible to share these costs equally. In addition, your financial histories will affect the type of mortgages for which you will qualify; it is possible that only one of you will qualify as a borrower. If that is the case, you will need to discuss whether your unequal financial stakes in the property will affect how you share ownership and accrue equity.

Shared Ownership

The title of a property legally defines the terms of ownership and especially how those terms change in the event of the death of one of the owners. Title, or ownership, can be defined in a number of ways. For example:

Joint tenancy is when two people, usually a couple, own equal and undivided interests in a property. They don't each own part of the property, but rather share ownership in the entire property. In this case the joint tenants also hold the right of survivorship, which ensures that when one joint tenant dies, sole ownership of the entire property will transfer to the other.

Tenancy in common is also when ownership is shared by two or more people and each person owns an undivided interest in the entire property. However, when a tenant-in-common dies, his or her interest in the property does not transfer to the surviving co-owners. Instead, it becomes part of the estate of the deceased and may be sold, mortgaged, or given to third party as defined in the will.

With sole ownership, a property is owned entirely by own individual. In this case, an unmarried partner of that individual would have no legal claim to the property, even if he or she contributed financially the property's maintenance or the owner's mortgage.

The type of ownership you choose will depend on your unique relationship and financial situation, but you should make sure that you have a clear understanding of the rights and responsibilities associated with the type of title you choose.

Worst Case Scenarios

The property rights of couple in common-law relationships differ from those of legally married couples, and they also vary by province. If a married couple splits up, their assets are automatically divided 50/50. But if you are not legally married, that might not be the case. Ugly surprises about how your shared assets are divided can compound the devastation of a break-up. Considering what will happen to your shared home if your relationship ends will prevent major headaches down the road.

We recommend creating a formal co-habitation agreement to define the terms of your co-ownership and what will happen in the unfortunate event of a break-up. Such an agreement should be drafted with a lawyer to ensure that it is fair and legally binding; you will need to establish a relationship with a lawyer for your purchase transaction anyway, and their expertise will help you think through all the possible scenarios. If you split up, who will move out? How will that person be compensated for their stake in the property? Will the property be sold, and if so, how will the assets be divided?

It is true that these are probably among the least romantic conversations that your and your partner will ever have, but coming to a formal agreement on these issues should be the first step of your home ownership journey as a couple. Buying a home together is a different commitment from marriage, but from a financial perspective, it is every bit as profound. Financial stress is one of the leading causes of conflict between couples. Make sure you and your partner are prepared to combine your financial futures before taking this major step together.