How does a home loan partnership work?

Taking a mortgage with someone can mean much more than sharing all the costs equally. Applying for a mortgage together often means co-owning the home. You should discuss if you and your partner want to equally co-own the property you buy or you want to divide the ownership according to the mortgage share. It’s also important to discuss the ownership structure of the property because it affects how each of the partners may dispose of the property and also its succession. 

There are two common ways in which you may own a home with someone else – as joint tenants or tenants in common. If you’re buying a house with your spouse or romantic partner, you might prefer the joint tenant structure. Joint tenants are equally responsible for the property and equally entitled to it. If one of the joint tenants passes away, their share in the property is automatically passed on to the surviving partner.

Tenants in common, on the other hand, may be a more suitable property ownership structure for friends or siblings buying a house together. Each partner can own their respective share of the property independently and everybody doesn’t need to have an equal share. If you and your friends are buying a house as tenants in common, you can own the property in any ratio, depending on how much each partner is investing into the property. 

It’s also simpler to exit the partnership as tenants in common. While joint tenants cannot sell their share without the approval of their partner, tenants in common can choose to sell or gift their share of the property to someone else unless there’s a written agreement between the parties that doesn’t allow this.

Apart from how you own the property, it’s also worth discussing who’ll be responsible for maintaining the property. Property ownership is an ongoing cost and you may want to discuss who’ll be responsible for keeping up with council fees, home insurance, and maintenance costs once you own the home. These decisions could be based on what each of you earns. For instance, the partner who earns more may take on a greater share of homeownership and pay more of the costs involved.

You could even choose to split the costs equally but don’t forget to discuss what happens if one of the partners cannot keep up with their share of payments. Another option is to have a joint bank account for all the partners where they pay a fixed amount each month to cover these costs.

Suppose you and your partner are both working professionals earning well. Lenders are likely to consider you less risky borrowers and may even offer you home loans with lower interest rates. However, you and your partner (or partners) will be separately responsible for paying off the entire home loan, even if you have a personal arrangement to split the repayments. It means if you take out a mortgage with a friend who’s unable to make her monthly repayments, you’ll be responsible for paying her share along with yours or the loan could go into default. That’s why it’s advisable to only consider buying with someone you trust and after understanding the arrangement properly. 

It could be a good idea to draw up an ownership agreement dealing with issues such as what happens if one of the partners cannot pay their share or or decides to move out of the arrangement for any reason. Would one party be able to buy out the other, or must the house be sold if any party decides to move out? There could also be a situation where one partner continues to reside in the home and the other moves interstate or overseas due to work commitments. How will you split the payments in that case? 

Talking about such potential issues and getting help from a legal professional to draw up a formal agreement covering them could help avoid conflicts down the line. 

If you’re buying a property with a romantic partner, you should consider a different set of potential issues. These include who gets to keep the property and continues making repayments if you end the relationship. In Australia, lenders may not let you remove a partner’s name from the mortgage, so you’ll need to refinance the home loan. If neither of you has sufficient income or savings, you may even need to sell the house when you separate to pay off the mortgage and pay back the partner who has contributed more towards the property. 

If you don’t feel comfortable buying the house with somebody else but need some help to get on the property ladder, there are other options. You could consider getting a family member to guarantee your home. Most lenders will allow your parents or other close relatives to use their property to secure your home loan. This can sometimes allow you to borrow money with little or no deposit. However, the family member who guarantees the loan becomes responsible for your repayments if you default. They must understand their responsibilities before agreeing to sign as a guarantor. You could also check if you’re eligible for any of the government guarantee schemes that may allow you to borrow money for your first home with as little as a 5 per cent deposit. 

If you’re confused about your options, speaking to a mortgage broker could help you understand the pros and cons of different mortgage types and ownership structures, enabling you to make an informed decision.