Is It Financially Sweeter to Buy a Home as a Couple?

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Buying a home isn’t for the financially faint of heart – and as prices rise, it’s becoming harder to purchase real estate solo.While the majority of first-time buyers tend to purchase in pairs (a 2015 study by Genworth Guaranty found 62% of buyers do so with a spouse or long-term partner), it can take even more than two to tango to get ahead in real estate markets like Toronto and Vancouver, as co-buying in groups rises in popularity.

Related Read: The Pros and Cons of Co-Buying a Home

While splitting the cost of a home can bring your wallet relief, though, it can complicate some of the tax credits and rebates you can expect to receive as a first-time buyer. Here’s a look at where buying as a couple (romantic or otherwise) can boost your affordability, and where you’ll benefit when buying by yourself.

Mortgages: Double the Scrutiny

While having two sources of income can be a great advantage when qualifying for a mortgage, if one applicant has less-than-stellar credit or a hefty debt-to-income ratio, that may not score you a better rate. It’s important to confer closely with your mortgage broker or specialist to determine whether both buyers should apply as loan applicants. In some cases, incurring a much higher interest rate as a result of one partner’s financial situation could be more detrimental than qualifying for a smaller amount at a very competitive rate based on just the other’s. Just another reason to have the “money talk” before taking your love to the home ownership level.

The Home Buyers’ Plan: Two Nesteggs Are Better Than One

The Home Buyers’ Plan, a federal program that allows first-time buyers to withdraw up to $25,000 from their RRSPs tax-free for the purchase of their home, can be doubly nice for two; a total of $50,000 of savings can be withdrawn from partners (assuming both have saved fastidiously and have the funds), to be paid back over a 15-year period. A solo first-time buyer, by contrast, will have only their own nest egg to tuck into.

However, both buyers must be first-timers in order to be eligible to access up to $50,000 – should one have owned property anywhere else in the world prior, they no longer qualify for their half of the program.

The First-Time Home Buyers’ Tax Credit: Sharing is Caring

The First-Time Home Buyers’ Tax Credit (Line 369) allows first-time buyers to claim $5,000 of their home purchase on their taxes which, when taxed at the minimum rate of 15%, equals a $750 credit. It’s a nice little perk designed to offset closing costs for buyers, but can only be claimed once per property – meaning you can split it with your sweetheart, but only up to the $750 total. Should one buyer not qualify as a first-timer though, the other partner can claim up to the full amount on their taxes – an amount a solo first-timer would receive in full, regardless.

Land Transfer Tax Rebates: “It’s Complicated”

Depending on which province you reside in – for example, in Ontario – you may be required to pay land transfer tax on the purchase of your home. It’s considered one of the more loathsome closing costs, taxing buyers on a sliding scale depending on the total purchase price:

  • amounts up to and including $55,000: 0.5%
  • amounts exceeding $55,000, up to and including $250,000: 1.0%
  • amounts exceeding $250,000, up to and including $400,000: 1.5%
  • amounts exceeding $400,000: 2.0%
  • amounts exceeding $2,000,000, where the land contains one or two single family residences: 2.5%.

For example, if you were purchasing a house in Toronto priced at the January resale average (reported by the Toronto Real Estate Board) of $1,336,640, you’d owe the following to the province:

The first $55,000 x 0.5% = $275
The next portion of $195,000 x 1.0% = $1,950
The next portion of $150,000 x 1.5% = $2250
The remaining $936,640 x 2.0% = $18,732.80

= a total of $23,207.80 in provincial LTT

The good news is, if you are a first time buyer, you’ll receive $4,000 back as a rebate from the province. But your relationship status – whether you’re married, how long you’ve been together, and whether your sweetie owned a home before – can affect this.

First of all, that rebate is per property, meaning you and your spouse are entitled to $2,000 each for a total of $4,000, assuming you both qualify as first time buyers.

If one of you doesn’t and the other does, one partner still only gets $2,000. Why? This is because the province calculates the rebate based on the buyers’ “interest” in the property – if only half of the financially-invested users qualify, only half the credit is given. It’s a similar case in instances where parents and children purchase together. Should the parent be a repeat buyer and the child a first-timer, and the parent either plans to dwell in the home or reap financial benefit, only the child would receive the rebate, at $2,000. However, if the parent is acting only as a trustee in the sale, the child – who is the only end user and purchaser – is eligible for all $4,000.

Cohabitation Could Impact Your First-Timer Status

It also matters whether you lived with your spouse or common-law partner ( together for a three-year minimum, according to the province) in a home previously purchased by either of you. If you did, that means your first-timer status is now null and void, regardless if you contributed any of your own money or not. However, if you dwelled with your now-partner in their previously-purchased home when not married to them, or having achieving common-law status, you could technically still be considered a first-time buyer. Depending on how complicated the situation, you may need to explain the extent you were “just friends” at the time.

A solo buyer who qualifies as a first-timer would receive the entire $4,000 rebate – with nary a lover’s quarrel to contend with.

 

About Penelope Graham

Penelope Graham is the Managing Editor at Zoocasa. A born-and-bred Torontonian and quintessential millennial, she has over a decade of experience covering real estate, lifestyle and personal finance topics. When not keeping an eye on Toronto's hot housing market, she can be found brunching in one of the city's many vibrant neighbourhoods. Find her on Twitter at @pjeg14.

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