Mortgage Loans with Family as Co-Borrowers: Family & Friends as Joint-Tenants can be a Viable Option for Loans

Financing a home loan used to be by an individual, a married couple or romantic partners. However, in the current economic climate and higher house prices, individuals are finding it more and more difficult to get into the property market on their own.

Therefore, a single person should give consideration to joining forces with a family member or even a good friend to obtain a mortgage as ‘co-borrowers’. Sharing a mortgage commitment with another person may ease the challenge of applying for and repaying a mortgage. Plus, it often enables buyers to enter the market with a higher borrowing capacity and increased security around home loan serviceability.

Home Loan Assessing Criteria Usually Used by Banks

When a home loan is applied for the bank uses certain criteria to assess the suitability of the applicant. Depending on the lending policies of the bank, it can be all or a combination of the following:

  • Period and stability of employment
  • Annual income
  • Liabilities- other loans and/or credit card debts
  • Savings record and amount of money saved
  • Availability of other funds to complete the purchase

Where two people are involved, meeting the above criteria could be made easy by pooling their resources. However, a single person may not be so lucky. An individual will have to have all of the following:

  • a permanent full-time job that he/she had held over a continuous period of time,
  • a high annual salary, to be able to meet serviceability,
  • little or no other liabilities,
  • a good savings record showing a reasonable amount saved,
  • other investments, such as shares, that could be cashed in to provided additional funds.

At present not many young people are able to meet all of the above requirements on their own. However, by getting together with a family member or a friend, they may be able to do so.
Advantages of Joint-Ownership of a Home Loan

  • Only one need have a permanent full-time job. The other can have part-time employment.
  • Both their salaries will be taken into account calculate serviceability of the loan.
  • They can have a certain level of liabilities between them.
  • Both their savings records will be considered.
  • Any funds that either may have can be put towards the purchase.
  • A property can be purchased to live in or as an investment.

Financial and Legal Arrangements

Of course it is important to remember that entering into a financial commitment with family or friends can stretch the boundaries of a relationship. Therefore, seeking legal and financial advice prior to signing a loan contract is essential. All parties must fully understand their rights and obligations to the loan and it is sensible to have agreements in writing before proceeding.