Buying property with a family member
29 January 2016 M'OR Mortgage Options
You might be happy to share chocolate (maybe!) or a facebook post, but have you thought about sharing property ownership?
By buying a property with a family member or friend, you will only need to save half a deposit, pay half the mortgage and cover only half of the bills. Sounds like a good idea, right?
Property co-ownership can be a great way to get a foot in the door at a reduced cost, but it can bring added complications.
Just be sure you follow these important steps, and you should be able to avoid any issues that arise from mixing money and friendship.
1. Decide on the bigger picture
Make sure you understand the each other’s reasons for buying, the goals you have for owning a property and any timeframes around selling. It’s obviously going to be a lot easier if you have similar objectives in mind.
2. Write it down!
Have a legal ‘co-ownership’ agreement prepared that outlines the rights and responsibilities of each person. It should also describe how co-owners can exit the investment and include a formula to calculate the ‘buy-out’ price upon exit.
You should consider:
- How do we determine fair market value if one person wants to sell?
- What is the process for buying out a partner?
- What if one person decides they want to use their share of the property as an investment?
- How do we agree when the time is right to refinance?
Whilst you enter the agreement not expecting any disagreements, it’s important to agree how they will be handled before they arise. A mediation clause is also a good idea to help you work through any issues.
3. Understand your finance options and how the purchase will affect your future borrowing (as an individual)
As co-borrowers, you and your partner are held liable for repayment of the loan. If your partner makes late repayments, or stops making them altogether, the responsibility will fall to the others listed on the mortgage – i.e. YOU!
You also want to consider how your loan should be structured. Co-ownership of property has more complexity than a typical individual owner-occupier or investor purchase, so you need to ensure that you choose a borrowing arrangement that is right for you both.
4. Seek advice
Structure your lending to be as flexible as possible to consider future changes in personal or financial circumstance.
If you need advice on structuring your finances, one of our experiences mortgage professionals is always here to help!
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