How To Get A Shared Equity Mortgage

How to Get a Shared Equity Mortgage

There are many hassles involved in buying a home, but one of the biggest is financing your home. Unfortunately, it’s a seller’s market right now, and with online buying options, it can be even harder than ever to buy a home because deals can be closed so quickly.

The good news is that lenders have attempted to make at least the financing aspect of purchasing a home slightly easier on the average person with shared equity mortgages.

If you’re wondering how to get a shared equity mortgage or whether it’s a good option for you, then keep reading. We’ll tell you everything you need to know about how to get a shared equity mortgage!

What is a Shared Equity Mortgage?

Before we dive into telling you how to get a shared equity mortgage, we want to explain what a shared equity mortgage is.

A shared equity mortgage is when you take out a mortgage and allow the lender to own a percentage portion of your home. Because the ownership doesn’t rest solely on you, your mortgage will be for a smaller amount.

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A shared equity mortgage is similar to a joint mortgage. However, in joint mortgages the other person who jointly owns the home typically lives in the home with you.

When you’re learning how to get a shared equity mortgage, it’s worth noting that with a shared equity mortgage, even though the lender owns a percentage portion of your home and property, they don’t actually live with you.

When you sell the property, both parties get a portion of the equity, depending on the percentage of equity each party owns.

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How Does a Shared Equity Mortgage Help?

You may be reading this article about how to get a shared equity mortgage and wondering how in the world this type of financing helps anyone, especially since it means relinquishing partial ownership of your home to the lender. Allow us to clear that up.

When you’re learning about how to get a shared equity mortgage, you’ll learn that the hardest part about getting a mortgage for many people is coming up with the down payment. With a shared equity mortgage, the lender takes care of the down payment so the borrower doesn’t have to worry about it.

According to Heather Tremain, who is the CEO of Options for Homes (a provider of shared equity mortgages in the private sector): “The shared equity mortgage helps people get onto the property ladder and start building equity more quickly, by helping them with their down payment. Under a traditional mortgage, the buyer would be responsible for saving the entire down payment lump- sum on their own.”

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Who is a Shared Equity Mortgage For?

If you’re reading our article about how to get a shared equity mortgage and wondering whether this financing option is right for you, then this section should help clear that up.

A shared equity mortgage is ideal for:

  • Borrowers with little in savings: This type of mortgage is a great option for people who haven’t built up large savings for down payments or other upfront payments involved with purchasing a home.
  • Adult children who have financial support from their parents: One of the types of shared equity mortgage that you should learn about while you’re learning how to get a shared equity mortgage is one that comes from parents. It means they can help you buy a house without having to pay taxes on giving you a large cash gift.
  • Home buyers with low incomes: Shared equity mortgages are excellent for low-income home buyers because they decrease monthly payments, as well as the overall mortgage total.

Advantages of Shared Equity Mortgages

Before you learn how to get a shared equity mortgage, it’s a good idea to learn about how this type of mortgage could potentially benefit you. Here’s a look at to some of the advantages of shared equity mortgages:

  • This type of mortgage can be massively helpful if you find yourself in a high-cost real estate market because it will lower the amount of money you’re paying for your home.
  • Shared equity mortgages have been offered by many municipalities and housing associations. They provided them to people who had low-incomes or were first-time home buyers.
  • Recent research from the Urban Institute shows that shared equity mortgages are a great way for low-income communities to increase home ownership. It also gives people the chance to re-assess their situations and re-think whether they can afford to purchase a home. They’re often more able to purchase homes with a shared equity mortgage, so it changes what they thought about their financial situations.
  • Many more private lenders have entered the market and offered shared equity mortgages in recent years, as well. They’re more prevalent in high-cost markets, but they’re so numerous that you’re likely to find them anywhere in the country.
  • When you’re learning how to get a shared equity mortgage, it’s important to know there is a type of shared equity mortgage between family members, such as parents and children. This is beneficial for the lending party because they don’t have to deal with the tax burdens that would come from giving the borrower a large cash gift. And, of course it’s beneficial to the borrower because they’ll have the money to finance their home.
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What is the First-Time Home Buyer Incentive

When you’re learning how to get a shared equity mortgage, you need to know about the First-Time Home Buyer Incentive.

The First-Time Home Buyer Incentive is a shared equity fund of $1.25B provided by the federal government. It was set up with the intent to make it easier for first-time home buyers to purchase a home. The initiative was first introduced in 2019.

If you qualify for the First-Time Home Buyer Incentive, you can receive up to 5% of the total value of the home towards a down payment if it’s a resale home and up to 10% of the total value of the home as a down payment if it’s a new home. You’re required to come up with 5% of the down payment yourself, as well.

Qualification for the First-Time Home Buyer Incentive

If you’re learning how to get a shared equity mortgage, then you’ll want to know whether you qualify for the First-Time Home Buyer Incentive.

Here are some of the requirements factored into qualification for the First-Time Home Buyer Incentive:

  • If you’ve owned a home during the past 4 years, you don’t qualify.
  • If you have a total annual household income of over $120,000, you don’t qualify.
  • If the property you’re interested in has a maximum mortgage amount of over $480,000 (which is 4 times more than the required maximum total annual household income), you don’t qualify.
  • The total amount you can spend on the property is $560,000, which includes the mortgage and the down payment. But it’s worth noting that most applicants don’t qualify to receive that much.
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First-Time Home Buyer Incentive Expansion- May 2021

In May 2021, the First-Time Home Buyer Incentive was updated and expanded. This means it’s even easier for first-time home buyers to receive financing for their homes. So, it’s important for you to know about the updated requirements of the incentive while you’re learning how to get a shared equity mortgage.

The most important thing you need to know about the expansion is that it only applies to people in Vancouver, Toronto, and Victoria. If you don’t live in these areas, then the previous qualifications still apply.

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Here are the new qualifications set forth in the expansion:

  • You can now qualify if you have a maximum total annual household income of $150,000, instead of $120,000.
  • You can now qualify to purchase a home with a maximum mortgage amount of 4.5 times your maximum total annual household income, instead of the previous 4 times.
  • You can now spend up to $722,000 total on your home, total mortgage and down payment included, which is more than the original $565,000.

Part of the reason that this expansion only applies to Toronto, Vancouver and Victoria is because the expansion was designed to further assist first-time home buyers in high-cost markets in these regions. It’s because it’s a lot more difficult to buy a home for $565,000 in these areas, but at least for $722,000 you should be able to at least find a decent condo to purchase.

The expansion came after years of outcries from critics who said that the First-Time Home Buyer Incentive only benefited people who lived in low-cost markets such as Regina or Winnipeg. The expansion now means that first-time home buyers can get help with financing their homes, no matter which market they choose and that’s why you need to know about the First-Time Home Buyer Incentive when you learn how to get a shared equity mortgage.

Conclusion: How to Get a Shared Equity Mortgage

If you’re looking for a good way to finance your home, then a shared equity mortgage may be a good option for you. Anyone in Canada who wants to learn how to get a shared equity mortgage should also learn about the First-Time Home Buyer Incentive. If nothing else, it doesn’t hurt to see if you qualify.

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FAQs about How to Get a Shared Equity Mortgage

Who provides shared equity mortgages?

Many municipalities and housing associations offer this sort of mortgage to both buyers with low- income and first- time buyers. Family members can provide shared equity mortgages too, and many private lenders are eager to offer them, as well.

How does selling my home with a shared equity mortgage work?

Of course, you have the option to sell your home with a shared equity mortgage. But whether you make any profit from the sale is dependent on the amount of equity you own. And you’ll have to share the profit with the lender, who also owns a percentage of the home.

Do all lenders provide the First-Time Home Buyer Incentive?

No. If you want to use the Incentive, then you should bring that up with the lender in advance.

What is the four-year rule and how does it apply to the First-Time Home Buyer Incentive?

To qualify for the First-Time Home Buyer Incentive, you can’t have owned a home within the past 4 years. The rule is that the four- year period starts on January 1st 4 years before the Incentive is applied, and ends 31 days before the incentive is applied.

Are there restrictions on selling my house with a shared equity mortgage?

There are often restrictions involved with selling the house that dictate how much you can sell the house for and who you can sell the house to. This is dependent on the mortgage agreement you’ve arranged.

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April 14, 2022
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