Buying a house jointly with your parents
By teaming up with your parents to buy a house, you make yourself a low-risk borrower in the eyes of the banks and avoid saving a big deposit.
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With property prices as high as they are, a lot of young Australian borrowers get help from their parents to buy a house. Finder research shows that 17% of Australian parents have helped their children save a house deposit in 2021. 7% have supported a home loan as mortgage guarantors. But you can go even further than this and actually buy a house jointly with your parents.
How can I buy a house with my parents?
There are different ways to purchase a property jointly. Your parents may have savings they can add to your deposit, or they might borrow some of the equity in their home to cover the cost.
You and your parents must decide the ownership split and the ownership structure. You and your parents will both be responsible for repaying the home loan. If either you or your parents fall behind on repayments, the other party is responsible for covering their share.
If you are buying a house with your parents, both you and your parents will be listed on the property title.
There are 2 ways you can buy a house in tandem with your parents: you can be tenants-in-common or joint tenants.
- Tenants-in-common. This is the more popular arrangement and allows you and your parents to divide ownership of the property in whatever way you like, such as 60:40 or 70:30. Under this ownership structure, if one party dies, their share of the property is passed on according to the terms of their will. It could pass to you, or someone else depending on the terms of the will.
- Joint tenants. Under a joint tenancy arrangement, ownership of the property is split 50:50. If one joint tenant dies, their share of the property is automatically passed to the other joint tenant regardless of what their will says. It's not possible to transfer ownership of one half without the consent of the other owner.
When buying a property with your parents it's very important to have everything clearly spelled out in a contract. It's a good idea to talk to a conveyancer (you'll need one to guide you through settlement anyway).
What are the pros and cons of joint property ownership?
Joint or co-ownership is not for everyone. For the right family it's a great idea but you need to weigh the benefits and potential downsides carefully.
- Enter the property market faster. In Australia’s expensive property market, co-buying with your parents may be the only way that some young Australians can realise their property ownership dreams.
- Increase your buying power. By using the equity in your parents’ home and sharing the repayments, you can afford to think bigger when choosing your first home. Instead of buying a budget, entry-level property, you could buy the home you want to live in for the rest of your life.
- Borrow less. By teaming up with your parents you are effectively borrowing less money than you would if you were out on your own, which means that you only have to manage smaller, more affordable repayments.
- Share the responsibility. Sharing the responsibility of loan repayments with your parents takes some of the anxiety out of the situation and means that you have a safety net if you get into any financial difficulty and fall behind on your repayments.
- Circumstances change. While you and your parents might be on the same page about buying a property now, will that still be the case in a few years’ time? As people’s lives change, so do their financial needs and goals. If in 5 years’ time you decide that you want to sell the property but your parents don’t, things can get messy.
- You and your parents are both liable for the loan. If you take out a joint loan for $500,000, you and your parents are both liable for the full $500,000 loan amount, not $250,000 each, as many people assume. If your parents’ financial circumstances change and they’re unable to make their mortgage repayments, you’ll need to manage the full loan repayments by yourself.
- Your future borrowing power is reduced. Banks will take into account your liability for the existing joint loan if you want to apply for financing in the future. For example, if you find a partner and decide to buy a house together, the loan you already share with your parents could significantly reduce your borrowing power.
Tips for buying a house with your parents
- Get professional advice. Before you enter into a co-ownership agreement, make sure you get advice from a solicitor or conveyancer. This will ensure that you know exactly what you’re getting yourself into and what you need to do to protect yourself from potential risk.
- Draw up a co-ownership agreement. It’s essential that you and your parents get a co-ownership agreement drawn up before you join forces. This will ensure that there are procedures in place if there are ever any disagreements or if circumstances change. For example, it can outline how to split costs between parties, what happens if one party defaults on their repayments and what happens if the loan needs to be refinanced.
- Have an exit strategy. Before signing on the dotted line, make sure you and your parents both have an exit strategy. How long do you plan on holding the property for? If one of you wants to sell up and move on, how will this situation be handled?
- Update your will. If you select a tenants-in-common ownership arrangement, make sure you update your will with the details of what you would like to happen to your share of the property if you die.
Joint ownership won't work for me – are there any other options?
If joint property ownership isn’t the right solution for you and your family, there are several other ways your parents can help you buy a house, such as:
- Going guarantor. If your parents guarantee your home loan, they agree to assume responsibility for your mortgage if you default on your repayments. This means that if you get into financial trouble and are unable to repay your loan, your parents will be asked to pay out the loan in full, which could put their own home at risk. With this in mind, your parents might consider a limited guarantee, which means that they only have to guarantee part of the loan.
- Lending you some money. If you have sufficient income to manage home loan repayments but you don’t have enough money for a deposit, you might consider asking your parents to lend you some money. This means that your parents can avoid the risks of going guarantor. However, be warned that some lenders won’t classify borrowed money as a legitimate deposit. A proper loan agreement should also be drawn up to prevent any problems from occurring.
- “Gifting” you some money. If your mum and dad decide to give you some money as a gift, they can avoid the pitfalls of going guarantor on a loan. This can increase your borrowing capacity and help you buy the home you want.
- Buying the property and then renting it out to you. This is a common strategy and involves parents buying an investment property in a sought-after location, for example, an inner-city apartment, and then renting it out to their child. The downside to this is that you’re still no closer to owning your own home, but if you can negotiate cheaper rent with your parents, you could be able to put more money aside each week to save for a deposit on your own property.
- Buying a property in your name. The final option is for your parents to buy a property in your name or through a trust. This allows you to live in the home while your parents face the responsibility of paying off the loan. The downside to this is that when you become the owner of the property, either when your parents die or when they transfer ownership to you, your parents (or their estate) will face a capital gains tax liability.
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