With housing affordability affecting many first homebuyers today, it’s becoming increasingly common for Australians to share their mortgage commitments with a family member.
Joint borrowing makes it easier for people to afford their own home as it may allow you to access more funds than you may have been eligible for without the assistance of another borrower. This can be a great strategy to overcome soaring rents and rental property shortages.
Joel Hollis, a real estate agent with Elders, purchased a home unit with his brother and described the decision to buy with family as a positive one. “I found that sharing the costs with a family member provided the financial security I needed and gave us access to properties that we would otherwise have not been able to afford on our own. Increasing the amount of money we could borrow [due to dual incomes and shared savings] certainly gave us wider options,” he said.
Another increasingly common practice to assist first homebuyers get their foothold in property is for parents to act as guarantors for their children by using the equity in their own home. With this type of loan, the homebuyer’s mortgage is secured against the equity in a family member’s property, which provides additional security for the loan amount.
Having a guarantor can assist the applicant maximise the amount they can borrow, which reduces upfront savings for the deposit and means the applicant may reduce or avoid paying lenders mortgage insurance (LMI), which can amount to thousands of dollars.
Anyone who is considering purchasing property in any partnership should seek legal advice regarding the arrangement.
Mortgage Choice financial services franchise recommends that each party, regardless of their relationship status, seeks the advice of a lawyer who can draw up an agreement. This ensures that both parties are aware of their responsibilities and protects the financial interests of both parties. It also removes the likelihood of potential challenges or complications down the track, should the partnership come to an end or change over time.
26-Sep-2008