Are you super eager to get on the property ladder? Have you ever thought about buying your first home with someone else? Whether you are buying a home with your parents, partner, best friend, or your cousin – what’s the catch?
Buying with someone else is a great way to get on the property ladder. Generally you will have more deposit to put in (including Kiwisaver Withdrawal and the Kainga Ora First Home Grant), it may increase your borrowing ability and it means you can split expenses like the mortgage, rates, insurance and maintenance going forward. As always, we are here to help you make an informed decision – so here is what you need to consider before buying with someone else…
You will be Jointly and Severally Liable for the WHOLE mortgage…
Even if you
have a mutual agreement that you will split the mortgage 50/50, at the end of
the day you are liable for the whole mortgage. So, if the person you buy with
can’t (or won’t) pay their portion of the mortgage, you are still liable for
the whole mortgage.
This can affect your future borrowing ability…
Because you are liable for the whole mortgage this can prevent you from getting finance later on. When you apply for a personal loan, credit card, business loan or even a separate mortgage you will need to allow an expense for the whole mortgage, which can reduce your borrowing ability.
And your credit score...
Like we have said you will be liable for the whole mortgage, so if one party doesn’t pay their portion of the mortgage and you end up in arrears (behind on your mortgage repayments) this will show up on your credit report.
Not all lending policy is equal…
Even though you are jointly and severally liable for the lending, not all banks and lenders will assess your income all together. Some will separate out the application and make sure that each party can meet income and servicing requirements on their own. This is why it is so important that you get the right advice and look at ALL of your options.
Seek independent legal advice...
When you are buying with someone else, we strongly suggest that you get independent legal advice. Especially regarding…
- the different types of ownership I.e. Joint Tenancy vs. Tenants in common.
- Property Sharing Agreement
- Wills
- Enduring Power of Attorney
What's on the horizon for both of you?
It’s a good idea to sit down and have a conversation about each other’s plans and goals especially for the next 3 years. Do you have plans to start a family? Are you in a new relationship where you might consider moving in together? Is travel on the cards? We all know plans can change but if you set clear expectations from the start then there are no surprises early on in your home ownership journey.
Set your expectations NOW
When you are buying with someone else there are lots of things to consider. From the type of house you want to buy, location, how mortgage repayments/rates/insurance are split, how long you plan to hold onto the property and how are you going to handle disputes going forward. Having hard conversations NOW before you are committed is going to save you time, money and stress later on.
Still considering buying with someone else? Contact us to speak to one of our Mortgage Advisers and let’s make your home ownership dreams a reality.
