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It doesn't take a genius to know that earning $100,000 per year makes it easier to service a mortgage than earning $50,000 does.
To clarify, I am not encouraging you to march in to your boss's office and demanding a $50k pay rise (your financial situation might change if you do this, but probably not in the way you hope!).
Rather, if your dream home currently appears out of reach, a reassess of your home buying plan might be in order.
There are many ways to increase your borrowing power and make your application appear more favourable to the banks, and teaming up with a co-purchaser is one of them. However, as with all financial ventures - a significant degree of risk can ensue. Take care, and be sure to consider all scenarios before diving head first into co-ownership.
Who can I buy a house with?
Obviously, when you talk about entering into property co-ownership, your partner is the first person that springs to mind. If you don't have a partner, don't fret; there are many other ways to pool funds and achieve your home ownership dreams. Here's just a few of the other relationships that might join forces to enter the property market:
- Parent and child
The benefits for entering into a co-ownership agreement can be huge. Not only can you double your deposit, but you also now have two streams of income to service your loan. This creates a lot more security than if you were to take on a mortgage alone; if one party experiences a loss of income, the risk is mitigated as there is a second source of income to fall back on.
Proceed with caution.
While the above can be extremely beneficial, co-ownership can come with a large degree of uncertainty.
Families, friends, colleagues; if things were to change, it certainly wouldn't be the first time a once solid relationship went pear-shaped. And with a house and mortgage thrown into the mix, there is plenty more to lose. Thus, before you sign on the dotted line, be sure to negotiate the following details:
Discuss what the situation would be if one owner wants to sell up. It might be best to set a fixed period (eg. not allowed to sell for the first 5 years) in order to avoid an awkward situation.
How will you manage maintenance costs? Each putting aside extra funds in a 'rainy day' account could be a requirement when entering into co-ownership.
Will either of you live in the property? Both? Neither? These kinds of details are essential, as rental prices will need to be negotiated in advance.
If you do decide to sell, how will the funds be distributed? 50/50 split? 60/40, as Applicant A had $10k extra to contribute to the deposit? All extremely important details that if not resolved, could cause tension down the track.
What happens in the event of a default? Will the other party chip in to cover the deficit, or is each party solely responsible for their own portion of repayments?
Are you joint tenants, or tenants in common? They may sound similar, but the two have very important differences. Namely, if one of you passes away and you are joint tenants, full ownership will automatically be transferred into the surviving tenant's name. Tenants in common, on the other hand, have shares in the property that can be passed on to another person as specified in one's will.
To cover all of the above before taking on a mortgage, its best to draw up a co-ownership agreement. This way, if your 'happy home owners' scenario was to unravel, you both have pre-defined rules to protect from any financial stale mates. Have solicitor cast an eye over this document; once all the i's are dotted and the t's are crossed, your unstoppable duo be ready to place that winning bid at auction.
Disclaimer: The advice provided in this article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. We encourage you to consult a finance professional before acting on any advice provided in this article or on this website.