Total Mortgages
The ‘must-knows’ when buying a home with family and friends

The ‘must-knows’ when buying a home with family and friends

Mortgages 101
Words by
Jordan Cameron

Buying a house with your friends or family can seem like a good way to get on the property ladder or even expand your portfolio, but understanding what everyone wants out of the venture, the terminology, legal implications and the risks is vital.

Multi-house applications have become more common in recent years as people look for different funding mechanisms to get into their first home or expand their property investments.

The perception is buyers can simply combine their incomes, make a mortgage application and all income will be considered, adding up to the required level needed to service any repayments. The reality however is more complex.

First you must consider how you will structure the property’s ownership. Joint tenancy is the most common structure and is usually adopted by couples. It automatically gives both parties an equal share in the property.

The alternative is tenancy in common which gives each owner a distinct share in the property which can be divided in any way you request.

When the bank is looking at your loan application, they will also consider whether you are going to be living in the property together or whether one person will live in the property and others will live elsewhere.

If you intend to live in the property together the application is more straightforward, and your incomes will be considered jointly. If you will be living separately however, banks will generally only consider each person’s income individually. This also means each individual person is also liable for the total mortgage.

For example, on a $600,000 mortgage if two people are putting in $50,000 each but they are not going to live together the bank will look at each person’s ability to service the $500,000 mortgage. This is to ensure that if one person can’t pay or changes their mind, the bank has more assurance that the other person won’t go into financial hardship.

Things tend to get more complicated the more people are involved, and you should be clear whether you are happy to take on the full amount of debt should anything happen. You should also consider that having a mortgage together means your credit record will be linked with your co-owners, so if they are financially irresponsible it also impacts on you.

In situations where family members join to buy property it is also important to factor in whether you are a first home buyer. When joining together to buy a property, you will still be able to access your KiwiSaver if you have been in the scheme for over three years, however this is a one-time withdrawal. Therefore, if you decide to part ways you won’t be able to withdraw your KiwiSaver again to put towards another house purchase. You may also no longer be eligible for any first home buyer grants as these have income thresholds you need to stay under in order to be eligible.

Whatever you decide, you should engage a lawyer to draw up a formal agreement between everyone involved so each person’s position is clear. Consider what will happen if one person wants to sell? What if not everyone wants to live in the house? How much insurance will everyone have to pay? Plus any other situations you can think might arise.

It is also useful to set expectations about the type of property you are all want to buy, what your collective goals are in buying the property and how long you might want to own it. You should also consider what would happen is any of you lost your income and if you plan to live together what kind of environment and house rules you are comfortable with.

Getting all these details on the table upfront means everyone has communicated clearly what they want before problems arise.

By ensuring you understand everyone’s goals, the terminology, legal implications, and the risks before you launch into a multi-house application, you can save stress later and set yourself up for success.

If you need advice on the options that might be available to you, remember our team of trusted mortgage brokers are here to help.