Why should I choose a joint mortgage?

Owning a home is a dream for many Aussies, but affording one can be tough, particularly on a single income. It can be difficult to save for a deposit and property prices have been rising exponentially for decades. Your financial circumstances could change depending on your job or expenses, making it difficult to convince a lender of your ability to make repayments.

However, your chances may improve if you can find someone - a family member, your spouse, or even a friend - to apply for a joint home loan with you. It’s important to discuss all the opportunities and risks involved in applying for a joint mortgage before co-signing the application, either as joint tenants or tenants in common.

What are the benefits of a joint home loan?

Typically, when you apply for a home loan, a lender will assess your creditworthiness, verify your income sources, and determine a suitable loan amount. With a joint home loan, you may be eligible for a larger loan amount if you and the other borrower(s) have good credit scores and are financially in good shape. 

Effectively, your borrowing power multiplies by the number of borrowers, assuming none of the borrowers has credit- or income-related issues. Further, lenders may favour a joint application as it gives them a better chance of recovering their money if one party defaults.

What to consider when taking on a joint mortgage

Ownership, occupancy and upkeep

When applying for a loan to buy a home, you should ideally know whether you and the other borrowers are all going to live in the home and, if so, for how long. With family members or spouses, you may all occupy the property for years, but it’s sensible to discuss what happens to the loan and the home if some, or all of you, decide to move out. 

You could consider drawing up an legally-binding ownership agreement that details the borrowing terms and occupancy conditions. For instance, you might say you are each responsible for repaying half the loan and would get half the proceeds from the sale of the home after the loan is paid off.

Considering that repaying a home loan can take decades, setting up a joint bank account or other means of regularly pooling repayments could be helpful, as the lender may not agree to receive partial repayments from multiple borrowers. Also, arranging to monitor the contributions and repayments from time to time may be necessary, especially if you do not end up living in the home together.

It might also be 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.

Credit scores

When you apply for a joint mortgage, your lender will assess both applicants’ creditworthiness before making a decision and determining an interest rate. If you have a good credit score, but your partner’s score falls into a lower band, or vice versa, then it’s unlikely the lender will offer you their most competitive interest rate.

Similarly, if you or your partner have a bad credit score, the lender could potentially reject your joint application altogether, regardless of the other applicant’s score. This is because both applicants are equally liable for the debt, so the lender must assess the overall level of risk and act accordingly.

Improving your chances of approval

If you or your partner have bad credit there may be steps you can take to improve your chances of success:

• Assess your individual credit scores for free before you begin the process of applying for a joint home loan.
• Save for a higher deposit. If your loan to value ratio (LVR) is <80%, you’ll avoid lender's mortgage insurance (LMI).
• Keep consistent employment records and maintain regular savings habits and an economical lifestyle.
• Delay buying a property until your partner’s credit score improves. Alternatively, consider a solo application.

Discontinuation

You may also want to address what happens if one of the partners cannot pay their share of the debt or decides to back out of the arrangement. Would one party be able to buy the other out, or must the property be sold?

Another important aspect involves passing on the debt in case one of the borrowers needs to exit the arrangement or dies. A home loan is a significant debt, but having to take on an unexpectedly higher debt may not be a comfortable proposition for everyone involved.

If anyone fails to contribute their share of the repayments, the other mortgage holders must take responsibility for ensuring all debts are paid on time. For this reason, it’s crucial that all joint borrowers understand the overarching financial implications and how they may be affected if someone is unable to repay their share of the loan.

If you enter into a joint mortgage with a romantic partner and subsequently your relationship dissolves, you’ll need to decide who, if anyone, gets to keep the property and continue making repayments. Some lenders may not let you remove a partner’s name from the mortgage, so may have to refinance the home loan. If neither of you has sufficient income or savings, you could even be forced to sell the property if you separate in order to pay off the mortgage and reimburse a partner if they’ve contributed more towards the property.

How to apply for a joint mortgage

Applying for a joint mortgage is, for the most part, a similar process to applying individually. You’ll need to provide all the relevant documentation and meet any necessary financial requirements.

It’s often advantageous to compare the market and examine all the different features, together with interest rates, of a variety of home loans before deciding on the one that best suits your needs as joint applicants. See RateCity’s comprehensive guide on how to apply for a home loan to understand all the steps involved.

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 a more informed financial decision.

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