Archive for the ‘Co ownership’ Category

2 ways you can get onto the property ladder by buying with friends or family (Part 2)

Posted on Thursday June 3rd, 2010 by Mortgage Choice
Posted in Co ownership, First Home Buyers, Mortgage Brokers, Top tips for property & home loans | No Comments »

Buying with family or friends - Part 2

Longing for a home of your own? Buying with a friend, family member or colleague can make that happen sooner.

Our last blog post looked at family equity loans as one way of buying with friends or family. Today we introduce a second way which is buying as ‘joint tenants’ or ‘tenants in common’.

So what’s the difference between joint tenants and tenants in common?

  • Joint tenants hold the entire property jointly with another or others. This type of holding is commonly used by married couples, not friends. In a joint tenancy, if one person dies, that person’s interest transmits to the survivor, even if the joint tenant who died had no will.
  • Tenants in common own separate interests in the same property. Each person does not have exclusive possession of any part of the property and you can bequeath the property in your will to whoever you like.

Benefits of buying together

Buying together also helps by splitting all the other costs involved, like legal fees, stamp duty and the like. It also means you could trade up to a bigger or better located property. You also have someone to help with the cleaning, and any renovation projects like painting or even sanding the floorboards. And you’ll be paying off your own mortgage, not someone else’s, which is what happens if you stay renting forever.

First Home Owners Grant

Keep in mind however, there are implications regarding access to the First Home Owners Grant (FHOG). If both of you are eligible for the FHOG you can apply, however only one grant will be paid. If one of you is ineligible then the other will automatically be ineligible for the grant.

“Marry in haste, repent at leisure” they say, though, and it’s just the same with co-ownership. You must, must, must have a co-ownership agreement drawn up, which sets out the roles and responsibilities of each of the buyers. It also deals with all the important issues upfront, like what happens if one investor wants to sell out, or if they stop making their mortgage repayments.

These co-ownership agreements can be expensive – depending on the solicitor, a few thousand dollars even. However, Mortgage Choice has partnered with Pod Property, who are experts in this field and can provide you with a co-ownership agreement for around $350. They can also help you organise your conveyancing and answer questions on joint financing.

Buying with someone else gives you an instant housemate, and really put you ahead in the property game. And when the time comes to move on, one owner can buy the other out, you can sell together or, all being well, you may decide to keep the property as a joint investment using the equity you’ve built up as a deposit for your next home.

Your Mortgage Choice broker can help by discussing your home loan options and your obligations as a joint borrower.

2 ways you can get onto the property ladder by buying with friends or family (Part 1)

Posted on Wednesday June 2nd, 2010 by Mortgage Choice
Posted in Co ownership, First Home Buyers, Home Loans, Top tips for property & home loans | No Comments »

Buying with family or friends - Part 1Although the property market appears to be cooling off somewhat, housing affordability is still a challenge for first home buyers, particularly with the number of interest rate rises in recent months (although at its June 1 meeting, the RBA kept rates on hold).

Banks also still have a tight rein on lending criteria, so you’ll be needing a fairly sizeable deposit of at least 10% to get your foot into your own front door. Bet you’re tired of hearing all that, aren’t you?

What are your options?

Now might be the time to consider buying with a friend or family member and there are a couple of different ways you can do this:

  1. The family equity home loan
  2. Tenants in common

A family equity home loan allows your parents or grandparents (or aunties, uncles, etc) to provide a guarantee in support of your home loan application by using equity they have in their own property as security. Hence, they become the mortgage’s guarantor by using their property to support a guarantee.

Guarantors

The guarantor can guarantee all or just a part of the home loan. From both parties’ point of view, the smaller the guarantee the better, as the lender will come after the guarantor for money if the borrower (that’s you) defaults. You should set up a budget to manage your expenses and repayments, and stick to it, so that your guarantor can be confident they’re not risking their money.

You should also make repayments at a higher level than necessary so that you build up equity in your property sooner, so you can release your guarantor.

Get your head around LMI and LVR

Having a guarantor means that you can borrow more money than the bank would lend you in your current circumstances, or that you can avoid paying Lender’s Mortgage Insurance (LMI). LMI kicks in when you borrow 80% or more of the property’s value. LMI protects the lender against making a loss if you default on your home loan and they have to repossess the property, and end up selling it for considerably less than they loaned against it in the first place.

For example, say you want to purchase a $300K property and borrow $285K. That gives you a Loan to Value Ratio (LVR) of 95%, which will mean you have to pay an LMI premium. With a guarantee of $60K from your parents as additional security, the LVR would reduce to 79%. So, you won’t need to pay LMI (saving you a few thousand dollars) and the banks may be more likely to loan you the money because your LVR is lower.

In Part 2, we tell you about buying as tenants in common.

Getting into the property market with co-ownership

Posted on Sunday October 11th, 2009 by Mortgage Choice
Posted in Co ownership | No Comments »

Co-ownership is an increasingly popular and viable way for many Australians to enter the property market and property investment. Essentially, co-ownership means buying a property with others, such as friends, relatives, partners, colleagues etc.

As rising property prices have pushed most Australian cities into ‘unaffordable’ territory, there are a great many people for whom the goal of property ownership is feeling like a very far away dream. Perhaps co-ownership is the way ahead for them, and for you?

What’s involved in co-ownership?

Two or more people, friends, relatives etc (note, it’s important that you trust and like the people you are investing with!) pool their money for a deposit on a property.
The investors (legally known as ‘tenants-in-common’) combine their borrowing power to get a good home loan. They can either live in the property themselves, or earn income from renting it out.

What are the advantages of co-ownership?

Most significantly, property co-ownership makes it much more affordable for you to enter the property market. You can split the cost of the property and all the associated purchasing costs (legal costs, stamp duty etc), so that it only costs you a fraction of what you’d pay if you were buying on your own.

With multiple investors paying off the mortgage, your loan can be paid off more quickly as well.
If you are living in the property yourself, you get to pay off your own mortgage rather pay rent to someone else. Or, depending on what you agree with your co-owners, you may be able to earn rental income by renting out your share/room in the property.

If living with friends, you get the enjoyment of living with people you like, who have a mutual interest in the property you’ve invested in.

Co-ownership may also be an option for friends to pool their existing equity or funds to invest in a holiday property together.

What are the legal considerations of co-ownership?

Whilst having significant benefits, entering a tenancy in common agreement comes with important legal considerations.

A Co-ownership Agreement should be drawn up as a cornerstone legal document for your investment. This sets out the rights and obligations of each investor. It deals with all the important issues up front, like what happens if one investor wants to sell out, or if they default on their mortgage payments.

Your Co-ownership Agreement needs to clearly account for all foreseeable situations, and provide clear, watertight guidelines.

To get more information about entering a co-ownership agreement, and making your move together into the property market, download the Co-ownership Guide 2009, from Pod Property (PDF 636kb). This detailed guide covers all sorts of issues surrounding Co-ownership and how to go about setting up your investment and agreement.

A happy ending

If you set everything up well up front, your co-ownership experience can be both enjoyable and profitable. After a period of time, you and your co-owners may be able to profit from your initial investment and you could even buy your next home on your own.