With big city property becoming increasingly more expensive, a new stress test on uninsured mortgages and mortgage regulations getting tougher, there is a growing trend for people to purchase homes with family or friends.
Reducing the Financial Burden
Partnering makes it easier to pass the means test because the combined salaries of the partners are taken into account. It may even be possible for two people to make a larger down payment improving your chances of getting bond approval.
Partnering with someone may also mean that rather than having to purchase an entry level home the partners can buy up, given that the allowable repayments will be calculated on the combined incomes of the partners. All in all, buying with a partner reduces the individual financial burden since shared maintenance and utilities costs should further reduce the financial implications of buying a new home.
Choose Your Mortgage Partner Well
Mortgage partners come from across the board and can include parents, siblings, colleagues or friends. The only hard and fast rule in choosing a partner is that you should trust your partner implicitly since you’ll both be responsible for maintaining on time mortgage payments. Because both owners are responsible for the bond repayments any potential problem with cash flow must be honestly and timeously discussed so that both partners have an opportunity to resolve the situation.
In applying for a mortgage both partners credit scores will be taken into account and if one of the partners has a poor credit score it can increase the required interest rate. Even a small increase on a large long-term bond can have a major impact on the eventual price.
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A Written Agreement is Essential
Buying property is a long-term investment, which means that there is a reasonable chance that circumstances will change during the term of the mortgage. Before drawing up the agreement you and your prospective partner should have a frank discussion about what you hope to get out of the investment, how long you plan to live together and what will happen when one of the you want to sell your share. You should also discuss who is responsible for the various aspects of home maintenance.
Before you embark on such a partnership it is essential that you employ a lawyer to draft an agreement. If one of the partners to the agreement reneges it could leave the other partner with a compromised credit score. You should also ensure that an exit arrangement is in place since it is likely that one of the partners will exit the agreement at some stage. If you both want to sell, it will be simple but when one partner wants out things can get difficult.
Finding a Partner
If you don’t know anyone that would be in a position to share a mortgage with you, real estate matching services have sprung to the need and will help to match you with someone who is looking for a partner. There are also lenders that specialise in products that are designed for partner mortgages. As many as four people can partner on a mortgage.
Buying a house with a partner could make it possible for you to purchase your own home, but the partnership must be approached with caution and the agreement between you should cover all potential problems.