If you don’t have the resources to purchase a home solo, teaming up with an friend or family member could be your key to tapping into the property market. Through a home loan partnership, lenders may permit higher loan limits which would mean bigger properties and more desirable neighborhoods are within reach.
Home loan partnership considerations
Discuss financial situations
Before making a decision, it is absolutely paramount to discuss how taking out a joint home loan will impact both of your financial situations in the future. It’s essential to keep in mind that this commitment isn’t short-term; if either of you decides to purchase property on their own afterwards, then having taken on a shared mortgage can hinder your ability to borrow money. For this reason, think through all possible outcomes thoroughly before signing any documentation and beginning house hunting.
Communicate ownership rights
When taking out a mortgage with someone, it’s not just about splitting expenses – joint ownership of the home could also be part of the equation. As such, both you and your partner should have an honest discussion to determine if equal rights over the property will be held or whether ownership will be divided based on who contributes what amount in terms of payments. Additionally, talk through how either individual can transfer this asset plus any potential heirs due to their unique arrangement for possession.
Types of home loan partnership
There are two prevalent methods of owning a home with someone else – joint tenancy or tenancy in common. If you and your partner plan to purchase property together, then the shared ownership structure of joint tenants is likely the ideal option for you both. Joint owners share equal responsibility and entitlement over the house that they own together. In addition, if one party passes away — their portion will be granted automatically to the remaining tenant without any need for legal paperwork or proceedings.
Tenancy in common is a great option for those wishing to purchase a property with friends or family members. Each partner owning their share of the real estate independently, without having to equally split the financial responsibility makes it an attractive choice. One can invest any amount according to how much money they are able and willing to put forth into this venture; thereby giving one complete control over their investment as opposed other ways of ownership.
It is also simpler to exit the partnership as tenants in common. Whereas joint tenants cannot sell their share without the approval of their partner, tenants in common can choose to sell or gift their share of the property to someone else unless there is a written agreement between the parties that does not allow this.
Maintenance responsibilities
Along with owning the property, it’s also important to decide who will be responsible for maintaining it. Owning a home comes with ongoing costs such as council fees, insurance premiums, and maintenance expenses that should be taken into account when deciding how things are going to work between you both. Depending on each other’s earnings capabilities, one partner might take on more of the burden than another – e.g., if they earn more money then perhaps they can pay out a larger portion of these bills?
Splitting costs
Splitting the costs equally is certainly an option; however, it’s important to discuss what steps should be taken in case one of the partners cannot afford their payment. Alternatively, a joint bank account may make sense where all partners contribute a fixed monthly fee towards these expenses.
If you and your spouse both have successful careers, lenders typically regard you as safe borrowers, offering home loans with lower interest rates. Keep in mind though that even if the two of you share an agreement to split payments among yourselves, each one is individually responsible for settling the entire loan amount. This means that if a friend who’s listed on the loan isn’t able to make payments every month then it’ll be up to you alone to cover her portion or else risk defaulting on the mortgage.
Discuss a partnership agreement
Given the possibility of an unexpected situation, it would be wise to consider drafting a detailed partnership agreement. This should address matters such as what happens if one partner fails to pay or decides to part ways with the arrangement for any reason. Can either party buy out their counterpart, or will you need to list your house? Furthermore, how will you handle scenarios where one stays in residence and another moves away due work obligations? A contractual plan can protect all involved from potential unfortunate events while providing peace of mind that everyone’s interests are taken into account.
Engaging in an honest dialogue about any potential problems, and seeking legal counsel to create a legally-binding agreement outlining them, could help prevent future disputes.
What about a home loan partnership with your partner?
When you’re buying a property with your romantic partner, it’s important to consider an entirely different set of potential issues. These include who will retain the ownership of the house and continue making payments if you unfortunately terminate your relationship. Unfortunately in Australia, lenders do not allow removal of one’s name from the mortgage so refinancing must be done instead. If neither parties are able to provide sufficient income or savings, selling may even become necessary for paying off both debts as well as giving back money owed by one party that contributed more financially towards said property.
If you’re uncertain about which route to take, consulting a mortgage broker can help shed light on the advantages and disadvantages of various mortgages and property ownership structures — arming you with important information for making an educated decision.
