When buying a home becomes a family affair
In the aims of achieving property goals and developing buying power, many Australians are now beginning to gather family resources. These resources range from family pledges, joint purchases or buying a percentage of a family home. These decisions require a lot of careful consideration to ensure this is the best option for yourself and loved ones.
There are pros and cons when it considering a family purchase. It can be a great opportunity and create stability for parents aiming to secure homes for their children, siblings wanting to venture into the investment property scene, without having to take on a mortgage by themselves, or even adult children wanting to help their asset-rich cash-poor parents. There have been many positive results for families who buy together, although, this is not always the case. A family’s relationship means much more than a property, especially if not every party fully agrees on the arrangement and understands all the possible outcomes.
Trying to save for a deposit can be very frustrating as property values are constantly increasing. This can cause for the ideal mortgage seeming unachievable. A family pledge allows for borrowers to use their parents or another family member’s home as a guarantee instead of a deposit. A lender could contemplate family pledge from parents, parents-in-law, stepparents or siblings. A family pledge will generally be applied to the deposit amount of 20% rather than guaranteeing the entire mortgage. The property that is being purchased will provide security of the remaining value (approximately 80%). ADD MORE TO IT
A joint purchase between family members can increase your buying power, whether it’s a first home or an investment property, it also reduces the individual mortgage repayments. Co-ownership can be structured in two ways, either tenants in common or joint tenants. A tenant in common ownership allows for the co buyers to decide on the ownership structure, such as 70/30 or 80/20. Under a joint tenant’s agreement, ownership is split 50/50, if one tenant was to pass away the property is automatically passed onto the surviving tenant. In both forms of co-ownership, the financial viability of both co-owners affects each other. Weak credit histories or low earnings impact the amount of finance available. No matter if one co-owner pays for their own share of the property, they are still liable for the full amount.
Buying a percentage of the family home
Buying a share in a family member’s house allows for access to cash for the owners and provides the buyer with equity in a larger property. Factors such as if the home still carries a mortgage or if finance needs to be arranged for the buyer. There are also tax and Centrelink implications that need to be considered, but strategies can be used to ensure the parents can reside in the home for as long as possible.
Positive outcomes can be achieved when doing a family purchase if all parties have a full understanding of the situation. If you are seeking advice regarding co-ownership, we are happy to help and guide you through the process.