Joint home loan: Tips for co-buying property
Is a joint home loan your ticket to property ownership? Our expert tips help you get ready to buy a home with a partner, friend or relative.
Key takeaways
- Buying property with a partner, friend or relative can help you get onto the market sooner than if you're buying on your own.
- With 2 incomes your borrowing power will be increased, but this may be different if you're buying an investment.
- Co-buying also comes with other risks like what happens if one of you wants to sell or the relationship breaks down.
How can co-buying property help?
If you're co-buying property you're now using 2 incomes to make your mortgage repayments. This means you can likely borrow more money because the banks feel safer that you can service the loan between you.
Adding a second income can lift how much a lender is willing to lend compared with applying on one salary. How much you can borrow depends on both incomes, your expenses and debts, and the interest rate and loan you're applying for, so use the borrowing power calculator further down this guide to get an estimate for your situation.
How to plan co-buying property
Discuss how costs will be shared
There are several costs involved in just the property buying process itself, like loan application fees, valuations, stamp duty, as well as repairs and maintenance.
Make sure you understand your cash flow and budget, then work out how you're paying those costs between you.
You may want to consider setting up a joint bank account to cover the loan repayments and expenses.
Also if you apply for a loan with a linked offset account, consider who will be responsible for managing this account and making additional repayments towards the loan. If one partner can't make their payment one month, what is the back-up plan?
What are your plans for today, tomorrow and the future?
If you're buying with a partner, consider whether the property needs will change over time. This will help you decide the kind of property you're looking to buy.
Alternatively, if you're buying with a friend or family member you'll need to make sure your plans are aligned. Will you both want to keep the house for the same amount of time? What happens if the relationship breaks down?
If your circumstances or plans change further down the line you'll both need to consider the costs of selling the property or transferring the title and home loan responsibility.
Questions to ask when buying a property with a partner
- How much can you both afford to borrow?
- Do you both have good credit history?
- Do you both have job security?
- What's your strategy? (e.g. capital gain or positively/negatively geared property)
- Is this an investment or owner-occupied property?
- If you are renting it out, how will the earnings or losses be split?
- What will the property ownership structure be? (e.g. joint ownership 50% each?)
- Have you done your due diligence? (e.g. research and sought expert advice)
- Have you gotten a rough idea of the upfront costs you'll pay, such as stamp duty, legal costs and insurance?
- Are you eligible for the First Home Owner Grant or stamp duty exemptions?
- Have you compared suitable loans available in the market and decided what type of loan you want?
- What are your plans for the property in 2 years, 5 years and well into the future?
Expert insight: Co-buying considerations
"Co-buying is a great idea. It's a great way for people to get into the market.
The considerations are: How much deposit do each of us have? What does this mean for the future? I.e. what happens if I want to sell before the other person wants to sell? What happens if the friendship or family relationship breaks down, particularly over money as well?
What you can do is have a co-borrower or co-purchaser agreement that can be done through a solicitor. This is common, but also the issues are common as well, which is why those agreements are in place."
How much can I afford to borrow?
When determining your borrowing capacity, the lender will take into account your combined income, assets, credit history and expenses.
To estimate how much you can afford to borrow, you can use our borrowing power calculator below. Simply enter your details, including your income and expenses.
Remember to select 'joint' for the application type and include both your incomes.
How to save for a property deposit
- Reduce existing debt. If you have existing debt, paying this off will help you save in interest charges and also increase your chance of approval.
- Analyse monthly expenses. Review both of your finances and spending habits. Look at your combined monthly expenses such as utility bills, transport and food to see if you can cut back on any of these costs.
- Lock in a savings target. Once you've finalised your budget plan and worked out how you can both lower your ongoing expenses, determine how much you need to save for a deposit. Most borrowers try to save up 20% of the property purchase price to avoid paying lender's mortgage insurance (LMI).
- Consider extra ways to earn. Are there other ways you can earn some money to contribute to your deposit fund?
- Joint savings account. Open a joint high-interest account that is dedicated to your deposit savings. Try to separate your deposit savings from your other accounts and keep tabs on how much interest you're earning each month.
Expert insight: Some banks may reduce your borrowing capacity
"When you have a co-purchase property, some banks may restrict your borrowing capacity vs other banks who will apportion your part of the debt and if it's an investment property, your part of the income. So what happens is, let's say for example myself and my brother have an investment property. Some banks will give me 100% of the debt, so his part and my part, but only give me 50% of the rental income, which would severely limit my future borrowing capacity.
So where you want to think about this is not thinking specifically about getting a loan based on rate. It's looking at a property share loan which are specific loan products that enable co-purchasing, which allow you to have your loans independent and separately, but still knowing that you're on the loan and on the title."
Finding your dream home
There are many ways to find a home. You can go down the professional route and enlist the services of a buyer's agent or financial planner. They'll review your budget, inform you of the costs that you'll likely pay, as well as of the trends and offers that are currently available on the market.
You can also go down the buying route yourself. This will require a sound knowledge of the market you're looking to buy in, as well as a large amount of research. For more information consult the first home buyers guide.
Questions to ask yourself and to consider when finding a property:
Do you want a unit or house?
How close do you want your property to transport, schools and shopping?
What's the condition of the property you're after? Do you want something that you can renovate later, or a property that's new?
Have you had the property inspected for pests and its structural condition assessed?
What can I do if the relationship breaks down?
Unfortunately, relationship breakdowns occur. If you want to protect your finances, it may be worth signing a co-borrowing agreement which will outline the future management and distribution of your assets in the event that the relationship ends.
A co-borrowing agreement can be arranged by a solicitor. This agreement will outline what will happen to the property and regular repayments in the unfortunate event of relationship breakdown.
Future changes to property ownership
If you need to change the property ownership of your asset, you'll need to budget for various costs including stamp duty and capital gains tax (CGT) and you'll need to complete the required paperwork to ensure that the property title remains up-to-date.
If you need to remove your partner's name from a property title, you'll need to complete a transfer of title form which can be accessed from your relevant state government department. Keep in mind that you may also need to get new mortgage documents drawn up from your lender.
Learn more about refinancing your home loan following a divorce to see what options are available to you. In these situations, you should seek independent advice from a conveyancer or a solicitor.
Other tips and advice for co-buying property
Conduct a home loan comparison
Doing some groundwork is highly important if you're thinking of purchasing a property with a partner. You need to carefully evaluate your strategy and the type of home loan and features that will suit your financial situation.
For instance, you may want to opt for a home loan that allows you to make unlimited extra repayments as this will help you to minimise the amount of interest payable over the life of the loan.
Top up your insurance
Before completing a transaction, it's a good idea to get yourself covered for any incidences which will render you unable to service your mortgage. If anything happens to you or your partner, the financial burden may be too significant to bear without insurance. Make sure you take out a life insurance and home and contents insurance policy.
Frequently asked questions about co-buying property
James Millard, Director of financial advice and mortgage broking firm Sufficient Funds stands as a trailblazer in Australian financial services. Combining a B.Comm, majoring in finance, almost two decades of financial expertise, and a unique entrepreneurial spirit, he leads his large team and clients with the philosophy that champions aligning financial decisions with personal values.
His hilarious and deeply insightful book, Insufficient Funds, furthers his mission of empowering individuals through financial literacy with a relatable approach.
More resources on Finder
Ask a question
4 Responses
More guides on Finder
-
What you need to know about real estate underquoting
This guide discusses what underquoting means, how it works and how you can protect yourself from agents using this tactic.
-
Should you rent or buy?
Are you still renting but have been thinking about buying? Find out what you'll need to know in the great debate of renting vs buying.
-
Should I make a pre-auction offer on a property?
A guide to making a pre-auction offer, how to do it properly, when to do it and when not to do it.
-
What is a Section 32 or Vendor’s Statement?
We run through Section 32 statements and talk about what important facts are contained in these documents.
-
What is a Section 173 Agreement?
A Section 173 Agreement is a contract between a local council and a landowner about what can be done with the land. If you own property in Victoria, learn about how Section 173 Agreements work here.
-
Sinking fund and strata properties: What you need to know
A sinking fund is an essential financial plan for any strata scheme, allowing the owners’ corporation to set aside funds for future capital expenditure.
-
What does “under contract” mean?
The words “under contract” don’t necessarily mean that a property sale is a done deal. Find out more about this term here.
-
Rent to buy schemes
Owning a home through a typical rent to buy scheme is often described as a scam. But this may be changing, at least in Victoria.
-
Buying at auctions – expert tips to come out on top
Auction tips for buyers: arm yourself with insider strategies so you can negotiate and out-bid the competition when buying a property.
My Son is wanting to buy a house and live with his girlfriend, but she is not able to fund any of it.
My questions is what should he do to cover himself if the relationship breaks down?
One thing he is considering is part leasing to her so she cant claim on the house if anything should happen down the track.
I don’t think he should consider this however, as she is not a good saver and although they have been together for several years (not living together) I worry that she may make a claim down the track if anything should happen!!
Does anyone have ay ideas?
Hi Sun of a Gun,
Thanks for your comment.
It may be best to have a legal professional curate a contract to protect your son’s interest before purchasing the property. Though the fees can be expensive, you’ll need to consider whether the cost will outweigh any potential problems in the future.
This article about adding your partner to the house title explains the different options available and what legal implications there are.
Please let us know if you have any other questions.
Cheers,
Shirley
Thanks Shirley for your advice. However he is not planning on adding her name at this time, he is only considering having her pay rent to begin with. not sure if this is the right thing to do?
Hi Son of a Gun,
If she intends to pay him rent then generally she doesn’t have any legal ownership of the property as she would act as a tenant. If the property is solely in his name, and the relationship breaks down there shouldn’t be any implications for him to ask her to leave the property permanently.
Hope this helps,
Shirley