If you found yourself on this page, it sounds like you also found yourself in love. We love love! If it feels like you are MFEO (meant for each other), just like in Sleepless in Seattle, then it could be time to move in together. Today, combining your incomes to reduce costs makes more sense than ever. While we’re no relationship therapists, we can certainly offer some solid advice to help you decide if it makes sense to buy a home with your partner. Here’s what we feel are the most important considerations before making this life-changing, ever-so-romantic decision.
Consider Where You Live Now
First, consider your current living situation:
Living with parents
If one of you is paying low or zero rent living with your parents, are you ready to give up that huge benefit? Since your partner has their own place, you have somewhere to (ahem) be alone, so the sense of urgency to find somewhere to be together might not be as pressing. If you’re both under 25, it probably makes financial sense to keep things status quo so you can build up a larger down payment with the money saved on rent.
Both living with parents
If you both live with your parents, then getting that alone time can be difficult. Also, you hopefully both have more money saved (!) for a down payment. That means buying a home together might be more realistic, especially if you’re over 25 and ready to enjoy your independence.
Both living alone
It’s a much different scenario if you both have your own places. You’re doubling up on expenses across the board, which is a significant drain on your finances, interfering with saving for a down payment. In this case, if you both are feeling financial strains and don’t have a down payment, then you should move in together, combine your savings and come up with a down payment to make it more affordable to buy. The average rent in Toronto is $1760 for a studio or $2300 for a one-bedroom. That means between you; you are paying $3520 to $4600 in rent each month. If you live together, you can save between $24,120 to $27,600 per year, not including things like internet or hydro not covered by rent. Your savings go towards your down payment, which for a $750,000 one-bedroom condo would be about $50,000. That means you’d have enough saved in about two years.
Are you looking for more resources for your homebuying journey? Check out these blogs:
- Have Toronto Houses Become More Affordable?
- Will Home Improvements Increase Property Taxes?
- 10 Tips for Finding the Best Toronto Real Estate Team For You
Owning Your Current Homes
We’ve given this scenario its own section because it gets more complicated:
One of you owns their home
If one of you owns a home and you decide to live together and share the mortgage payments, keep in mind that no matter how much the person moving in contributes to the mortgage, the title holder takes precedence home-ownership-wise if you split up. To avoid conflict, the partner owning the home can add their partner’s name to the mortgage but do so when it’s time to renew. This avoids fees for making changes to the mortgage. You can also decide to live in a home you buy together. In this case, you can use some or all of the equity from the home sale towards a down payment for your purchase. We can discuss the costs related to selling, how one buying their first home and the other making their second purchase impacts available first-time buyer privileges, and where you’ll come out financially if you choose to sell.
Both of you own your homes.
If you both own your homes and both sell, you can come up with a nice down payment to buy a home together, depending on your combined equity. You’ll then enjoy lower mortgage payments or, in some cases, own the new home outright. If one of you lives in a killer home in the hottest neighbourhood, then you can keep that property as your home and use the equity from the sale of the other property to help pay down the mortgage. We can provide free price assessments so you understand how much equity you each have in your homes, whether you should hold on to one of the properties, or decide to sell both and buy a property together. You also have the option to use one or both of your properties as income properties with tenants!
Speak to your lenders to understand your options to reduce your mortgage burden, avoid fees and pay down the mortgage faster.
Is a Toronto housing market crash coming? Probably not. Here are some reasons why we think a housing market crash won’t happen. Read more.
Noticeable Financial Imbalance
If it seems you’re ready to take the plunge and live together, it can be a little awkward if you have a huge difference in income or savings. You’ll need to have a clear agreement on how much each contributes to your down payment, how much each contributes to the mortgage, and not to be all doom and gloom, but what that means if things don’t work out. Some common budget arrangements include:
- Creating a combined account for expenses with an agreed-upon contribution based on your incomes, with any additional income you each have left over going into your individual savings accounts
- Going 50/50 on the household expenses, with each having your own personal accounts and then putting 50% towards your mortgage each month
- A joint account for everything where you pool money for expenses and savings
If you want to split everything 50/50 when your incomes are quite different, keep in mind that this impacts the type of home you can afford. As a result, you might not end up in your preferred neighbourhood.
Pro Tip: Draw up budgets individually and then compare them. The person with the higher budget can then decide how much they are willing to cover for the person with the lower budget. This will determine how much you can afford for your mortgage, without going over the highest monthly budget.
Don’t Forget Debt
Along with income, there’s a little matter of debt. Debt puts strain on a relationship, so understanding your partner’s debt is important. When applying for a mortgage, if one or both of you carry high debt, this will impact your ability to qualify. If you do qualify, it will be for a much higher interest rate, as debt is equal to risk in a lender’s eyes. So, they use higher interest to cover costs if you default on payments.
You don’t want to buy a home with someone carrying debt, so both of you should pay down your debt. Ideally, it would be best to get your credit scores up, so you can negotiate a better mortgage. Although you can decide to apply for a mortgage on your own, you’ll qualify for less and then run into issues if you should break up.
Pro Tip: To avoid getting into massive, unmanageable debt, make sure your housing costs aren’t more than 32% of your combined gross income.
Looking to understand more about the Toronto real estate market? Check out these posts:
- How Toronto Interest Rate Hikes will Impact You
- Can Homebuyers and Sellers Benefit from Balance in the GTA Real Estate Market?
- Long-Term Real Estate Market Trends in Toronto
Understand Cohabitation Laws
As mentioned above, it gets complicated if you move in with someone who owns their home. The way it works when you’re not married is that it takes three years to be considered living in common in law under the Family Law Act. Also, common in law is not the same as marriage for property ownership, which means you and your partner don’t have a right to each other’s assets, including mortgage payments you make on a home you don’t hold title to. This is not very romantic to think about when you’re in love but having a cohabitation agreement in place is just one of those things you do to keep things fair. Frankly, it’s something more and more couples are doing today to maintain their independence.
The Bottom Line
Although buying a home together makes homeownership more affordable, weighing your current expenses, living situations, and debt will tell you if now is the right time to make a move.
If you’re looking for the best Toronto real estate team to guide you on your real estate decisions, call The Christine Cowern team at 416.291.7372 or email us at firstname.lastname@example.org. We’d love to work with you!