MyRate Education Centre
Co-borrowing and Family Support
If you are considering purchasing a property with a friend or with the support of family members, below are some important points to consider.
Co-Ownership
Property co-ownership refers to a two or more people sharing the ownership of a property. This means:
- Pooling your money with others to put down a home deposit;
- Combining your incomes to increase your borrowing power from a home loan lender;
- Paying off the mortgage on your home together;
It is advisable to have a Co-Ownership Agreement in place when purchasing a property with a co-borrower.
This agreement generally states that each co-owner has a power of attorney in their favour so that a co-owner can take over a defaulting party's share in order to either refinance or sell out.
The main reason to get a co-ownership agreement is to prevent the group purchase turning sour. Without a co-ownership agreement, it can be very costly to litigate the outcome in the case of one party needing to sell out or defaulting on the loan. A co-ownership agreement is the most important factor in any group purchase.
Co-Ownership agreements are not part of your loan application, and can be obtained through your legal advisor. Some websites exist that specialise in providing these agreements. One option is PodProperty. Please ensure that any agreement you obtain is right for your circumstances and seek legal opinion if you are not sure.
Family Support
Immediate family members can offer support to assist a family member to purchase their first property. This is also known as becoming a guarantor for the loan, and usually involves one or both of the following 2 guarantees:
- Security/Property guarantee – the guarantor offers their own property to use as additional security along with the property being purchased. This can often help to avoid having to pay Lenders Mortgage Insurance.
- Income guarantee – the income of the guarantor is taken into account to help the loan meet servicing requirements.
MyRate accepts three forms of family support:
- Security support only
- Security and servicing/income support
- Co-borrower and Co-mortgagor – where the family members jointly purchase the property together.
If you are thinking about guaranteeing a loan, consider these important points:
- Will you be placed in a position of hardship if the loan you are guaranteeing defaults?
- If you are forced to sell your own property within a year or two of guaranteeing the loan, will you be able to cover any costs and fees which may be incurred? (this includes a Deferred Establishment Fee if discharged within the first 5 years)
- Will the family member you are guaranteeing be able to service the loan on their own when you plan to extract your guarantee?
If you are considering purchasing as a co-borrower or as a guarantor, you should be aware of the following points:
- Every party associated with the loan is liable for meeting the loan requirements – such as repayments.
NOTE: This means that if one party defaults, the other parties are liable for the full loan amount and not just their share of repayments.
- Any defaults associated with loan will be recorded on the credit file of each party.
- On application, a credit check will be performed which will appear on the credit file of each party.
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To discuss guarantors / co-borrowing options further, enquire now.
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