Joint home loan: Tips for co-buying property

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.

For example, a single applicant on a $100,000 salary may be able to borrow approximately $697,000 on a 5.50% interest rate. But if you add in a co-buyer on a salary of $90,000, your borrowing capacity goes up to $1.3million.

Bear in mind that those numbers will change based on your expenses and the loan you're applying for, but it at least gives you an idea.

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/negative 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."

Aaron Christie-David

Editorial Review Board

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.

• Get an estimate of your borrowing power
• Speak to a lending expert about your borrowing power

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."

Aaron Christie-David

Editorial Review Board

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 buyers 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.

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

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

• What happens if one of us dies?

  In the event that you pass away, your co-borrower will assume responsibility of your mortgage repayments. Learn more about what happens to your home loan if you die.

  You can also include special clauses in your will.

• What happens if one of us gets into financial hardship?

  Consider opting for a home loan with a portability feature or one that allows you to take a repayment holiday in the event that you experience financial hardship.

  It's advisable that you have a contingency buffer of funds for a 'rainy day' by keeping $10,000 - $15,000 in an offset account.

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.

To make sure you get accurate and helpful information, this guide has been reviewed by James Millard, a member of Finder's Editorial Review Board.

Written by

Rebecca Pike

Editor, Money

Rebecca Pike is Finder’s money editor, with over 7 years of experience in mortgages and personal finance. A frequent TV and radio commentator, she frequently appears on Sunrise and 7News, Today and 9News, as well as Sky News, Channel 10 and across radio and print. Rebecca previously served as Editor of Mortgage Professional Australia. She has a Master’s degree in Journalism as well as ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products, which comply with ASIC guidelines. See full bio

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