There are so many things to consider when buying a house in Ontario. First and foremost, the location, as well as the condition and overall appearance of a home. After you place an offer and the seller accepts, the moving process begins, and each member of your family eagerly anticipates life in a new neighbourhood.
What often gets overlooked is how to set up the title for your purchase in the first place. However, this is an essential aspect of estate planning, particularly since your home could very well be your most valuable asset. In this post, we’ll do a deep dive into the implications of both Joint Tenants and Tenants In Common.
It’s tough to think of everything when buying a house. Fortunately, our comprehensive Buyer’s Checklist can guide you, which you can download for free right here.
Decoding the Legalize
Joint Tenants and Tenants in Common may sound vaguely similar. They both involve buying real estate as a group, and both have the word “tenants” in the title, after all. However, when it comes to legal documents, a slight change in verbiage can have a vastly different impact, as it does here. To illustrate, let’s take a look at a few individual scenarios.
You buy a house with your partner and use Joint Tenants on the title. In this case, each party has an equal stake in the property and right of survivorship. If one partner passes away, the other automatically inherits the home. No probate is necessary.
You buy a house with your adult child and use Tenants in Common. Under this arrangement, you can divide the percentage of ownership as you see fit – as long as all owning parties are in agreement. For example, imagine you provide the down payment and cover all of the closing costs. As such, you decide that 70% of the title goes to you with the remaining 30% to your child.
You buy a house with your friends. With real estate values as high as they are, this is a path many first-time buyers are using. There is no limit to the number of people who can be on the title. However, settling the estate will be more complex if one owner passes away, which is perhaps the most defining difference between Joint Tenants and Tenants in Common.
Are you planning to purchase a home in Peterborough or Kawartha Lakes? The posts below can help set you up for success:
- How to Buy a Home in Peterborough With Help From Family
- Why Work With Jeff & Katie to Buy Your Next Home?
- How Does Getting a Pre-Approval Help Your Home Buying Dreams Come True?
Tenants in Common: How Survivors Are Impacted
Under Tenants in Common, the portion of ownership does not transfer to the surviving owner when someone passes away. Instead, it goes back to the estate and will be divided up according to the deceased’s Will.
If you’ve bought the house in the hopes of helping your adult child get into the market, a Tenants in Common arrangement can have lasting implications. The home may have to be sold if the surviving owner cannot afford to buy out your portion or carry the entire cost of the property. In addition, your portion of ownership will need to go through probate before your estate can be settled.
Complications of Tenants in Common
The ability to buy real estate as a group can be a game changer in a challenging market or when someone cannot qualify to purchase on their own. The financial burden becomes lighter with more people contributing to the down payment and monthly costs.
That said, the more names on the title, the more complex the situation can get. If you thought getting a group of people to agree on pizza toppings was difficult, imagine buying a house together! Estate planning aside, there will be numerous decisions starting well before anyone gets the keys to the house.
What renovations to make, how much to offer, and who covers what expenses are just a few forks in the road that will require collaboration. Later on, you may have to decide whether or not to sell the property, which opens up a whole new set of decisions that all owners must come to a consensus on.
All owners also share responsibility for the property, both financially and legally. If one party doesn’t pay their portion of the property taxes or mortgage, the others will have to cover for them. If one owner secretly racks up debt against the house, the others could also be on the hook for repayment.
How you set up the title can affect your beneficiaries later when selling your home. The posts below will help you and your loved ones know what to expect:
- How to Choose an Executor to Sell Your Home
- Do You Need Power of Attorney for Peterborough Real Estate?
- What Are the Best Practices When Handling an Estate Sale?
What to Know About Joint Tenants
Overall, buying a house as joint tenants is more simple and straightforward with its equal distribution and automatic transfer of ownership. Though usually done by married or common-law spouses, anyone can purchase property as joint tenants. It could be an arrangement among friends or an older relative helping a younger family member into the market.
One thing to remember is that every individual on the title shares all rights and responsibilities associated with the property equally–regardless of how much they contributed to the purchase. If you cover 90% of the cost when buying a house with your adult child, they own 50% of it as a joint tenant.
In addition, all owners on the title are equally responsible for any debts and taxes on the property. The agreement can get messy if conflict arises or if one person can no longer cover the costs. In spite of all of this, buying a home with a partner or as a group could be one of the best investments any of you ever make.
Whether you proceed as a Joint Tenant or Tenants in Common, be sure that each buyer knows exactly what is expected of them. Proceeding with caution and getting a lot of professional advice along the way will help to ensure a successful and peaceful home-buying experience.
Do you have more questions about buying a home in Peterborough or Kawartha Lakes? Our experienced Peterborough real estate agents are happy to offer personalized guidance. Reach out to team@jeffandkatie.ca or call 705-243-9797 for more information.
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