What to consider when buying a home with family or friends
You love your friends and family but should you own a house with them? Here’s what the experts at Trade Me Property have to say.
Saving for a deposit to buy a house has never been harder.
Jokes about foregoing avocados and takeaway coffees aside, the reality is that saving to buy a property by yourself seems out of reach for many New Zealanders.
ne option for rst time buyers is to pool resources with family and friends to get a foot on the property ladder.
“With the average house price now reaching $784,450 (February 2021), buying with family or friends could mean the difference when bidding unconditionally at auction,” says Chase Koolen, Key Account Manager at Trade Me Property.
But buying a home this way has its risks, so the experts at Trade Me Property have highlighted the things you need to know before you jump in.
HOW DOES IT WORK? When you buy with family or friends, the type of ownership you will enter is known as tenants in common ownership. Put simply, it means buying a house with another person, or people, without being in a stable relationship with them.
Rather than buying a house jointly, tenants in common each have separately transferable interests, and separate shares of the property.
EXPLORE YOUR MORTGAGE OPTIONS It’s not going to be as simple as you and your best friend approaching the bank manager for a mortgage. Some lenders may be so risk adverse that they won’t even entertain the idea. But other lenders might allow you to mortgage independent shares, where each party owns interests in the property that may or may not be equal, but are clearly de ned.
However, remember that everyone is equally and jointly responsible for the loan in its entirety. That means you must make sure you are able to secure the loan you want before making an offer.
GET A GOOD LAWYER It cannot be overstated how important it is to hire a reputable lawyer to draw up a co ownership agreement that all parties will sign to make sure all the legal checkboxes are ticked.
Things commonly covered in co ownership agreements include: how much money each person puts forward; what happens if someone defaults on a payment; how disputes will be handled and what happens if one party wants to sell.
WHAT IF IT GOES WRONG? So, what happens if someone takes off and leaves you in the lurch with their share of the mortgage to pay?
If you are a joint borrower, you will have to pay the bank back all of what you borrowed, not just your stake.
If you don’t, the bank can sell the property as a mortgagee sale, and, as you are liable for the entire loan, your borrowing power could be affected for future loans.
PLAN AHEAD There can never be too much planning when it comes to buying a property with family or friends.
Discuss every possible scenario in detail, no matter how far fetched it seems at the time, before signing up and cover yourself legally as much as you can.
If you plan on living together in the home, have some hard conversations about lifestyle, long term plans and expectations of each other. Be honest and upfront with each other right from the start and you should be able to avoid any problems down the track. If you are ready to take the plunge and buy with family and friends, start your search on Trade Me Property, New Zealand’s number one property site.