Now that you’ve got your group together and you’ve decided that you would be a good fit, it’s time to get real about everyone’s financials.
The reality of financing co-owned real estate is that it presents more challenges than real estate purchases made by single people, families or couples. There isn’t the same financial infrastructure set up in the same way as there is for traditional real estate financing.
For most cooperative lenders, all parties, i.e the whole purchasing group, are liable for the full mortgage payment. Financial readiness is a little more complicated with co-purchasing because your debt, equity, and income need to be considered as a group.
This can be daunting for lenders unfamiliar with the process and many are unwilling to take on a co-purchasing group.
But never fear! GoCo can help you set yourself up for success and even connect with you experienced lenders and mortgage agents well-versed in co-ownership real estate purchases.
What You Will Achieve In Step 2
Creating your group purchasing strategy
Knowing the types of lenders available; and
Assessing your financial profile
Common Challenges
Before we begin assessing and compiling all the financial information you need, you should be aware of some of financing your co-ownership real estate purchase.
Managing Risk As A Group
In today’s market, there are no mortgage products that allow “fractional mortgages” i.e. mortgages where you are responsible for only a portion of a home. To be on the title, everyone must be on the mortgage. You are responsible as a group to make the mortgage payments.
It’s important that everyone in your purchasing group becomes financially naked. Every member needs to share - with complete transparency - their financial history including their credit score and debt. It may not feel like your personal consumer debt has anything to do with a co-owned real estate purchase but, to a lender, it does. A group member who has high debt, despite having a good income, might impact your application negatively.
Lender Discretion
Different lenders have different limitations. Most lenders allow for up to 4 people on your mortgage. Only a few allow more. Some require credit scores higher than 680. Some will allow borrowed down payments, others will not. Not all lenders are comfortable with non-familial members on an application; beyond family, married or common-law relationships, their sense of risk increases.
With more financial histories to review, the process also takes longer than other mortgages to approve. With more than 4 people, larger homes, and multiple units, this process will take even longer.
Determining Accountability and Equity
As you build your financial profile with your purchasing group, you will need to make decisions about each member’s accountability, or equity and decision-making power: How will decision-making power correspond to the equity assigned to each member? Will they be equal, or distributed differently? Later in this section we’ll break down an example of one group’s distribution of equity vs. decision-making power.
Now that you have the basics, it’s time to get started with the first section!
How Do You Build Your Financial Model?
Click on the sections below to learn more.
Introduction to Building Your Financial Model
What are all the Steps to Becoming a Co-owner?
Click on the links below for all the blog articles related to each step.
“Financing for co-ownership can get complicated. It may seem daunting at first but if you are prepared it has the potential to open a wealth of opportunities for your group.”
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