Housing affordability has dominated our national politics, news and current affairs and even our everyday conversations.
With lower lending approval rates and a tightening market, many home buyers are searching for alternate living arrangements.
One of these alternatives is buying a house with family. Some of you may be thinking it’s a risky move but there are plenty of benefits to part-owning a home with family members.
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Advantages of buying a house with family members
Firstly, buying a house with family is cheaper than buying on your own. Alone you may only be able to afford a property for $350,000.
With multiple family members your borrowing power is likely to be much higher, meaning you can get into the property market sooner.
You’re also not as limited by budget and therefore have more choice in the properties you’re looking to buy.
Buying a house with family also means bills can be split and homeowner financial responsibilities are shared.
This means you have lower financial commitments because you’re only paying for a portion of the home rather than the whole property.
When you co-own a house there is also potential to use your portion of property as an investment. This can benefit your financial position through rental income, help you to secure future home loans and offer lucrative taxation benefits such a property depreciation.
Disadvantages of buying a house with family members
Co-ownership inevitably comes with compromise. As a solo buyer you only need to cater to your own desires. When buying a house with family, you need to consider other members’ needs, thoughts and feelings throughout the buying process and beyond.
This can strain your family relationship, particularly if members regularly disagree on certain aspects of the property.
It also means you don’t have complete freedom of control when it comes to the property. You’ll need to make decisions collectively and ensure all parties are happy.
Buying a house with family can also make the buying process more complicated. Co-ownership isn’t as straight forward as one buyer applying for one home loan.
If you plan to buy a property with family as a first home buyer, it will also make you ineligible for the first home buyer’s scheme.
Details to consider when buying a house with family
Along with the advantages and disadvantages, there are several key considerations before buying a house with family.
For example, will everyone live in the property as an owner occupier or will portions be used for investment? This is an important point to discuss before purchasing a property together.
If part of the property is to be used for investment purposes be sure to properly record and track any expenditure for tax purposes.
Another key consideration is how the property will be divided.
- Will all parties contribute the same amount or are some contributing more than others?
- Does everyone have the same buying power?
- How will the property be held? Is this a short term or long term plan?
- Having a clear idea of the property’s ownership structure at the beginning is crucial in minimising conflict in the future.
Like any other buying scenario, it’s also important to consider the market conditions. Research the property market and economic conditions in your city or region before house-hunting.
Get it all in writing
It’s important to have a formal property co-ownership agreement drafted before entering into anything. Although it may seem strange to do this, buying a property with family is the same as entering into any other financial agreement so it’s important to have a guiding principle.
A co-ownership agreement is a legally binding document that establishes clear guidelines for a variety of scenarios.
For example, what if one family member wants out? What if your sibling wants to use their portion of the house as an investment? What if someone defaults on their home loan?
An agreement provides answers to these questions and offers peace of mind. It may be an additional cost but it’s money well spent to protect your future.
Home loan options when buying a house with family
Now you know the advantages and disadvantages and are equipped with a co-ownership agreement, it’s time to consider your home loans options.
Property share or co-ownership home loans allow multiple borrowers to purchase a property while keeping their finances separate. This option is effectively two separate home loans secured against the same property and is offered by a select number of lenders.
It’s important to note property share is different to a joint home loan which has traditionally been the most common approach to buying property with someone, either a partner or a family member.
A joint home loan is one loan with two applicants. The loan is based on the combined finances of applicants which generally means there is stronger borrowing power.
Be sure to consider all available options to secure the best home loan for your family’s scenario.
FAQs – Buying a House With Family Members
What are the financial benefits of buying property with family?
In family property co-ownership, several legal considerations are crucial to ensure that all parties involved are protected and to prevent future disputes.
These include creating a formal co-ownership agreement, deciding on the type of ownership structure, understanding the implications of property share versus joint home loan options, and considering the impact on eligibility for government schemes.
Consulting with legal professionals to draft a co-ownership agreement tailored to specific needs and situations is advisable to address these and any other relevant legal considerations effectively.
How does co-ownership affect property choice and financial freedom?
Co-ownership of property, particularly among family members, can significantly affect both property choice and financial freedom in several ways:
- Expanded Property Choice: With combined financial resources, co-owners can access a broader range of properties than they might individually. Higher borrowing power means potentially looking at larger, more desirable locations or properties with more amenities. This collaborative financial approach allows co-owners to enter the real estate market sooner and in better positions than if they were purchasing alone.
- Increased Financial Leverage: By pooling resources, co-owners can potentially make a larger down payment, reducing the need for mortgage financing or qualifying for better mortgage terms. This can lead to significant savings on interest over the life of the loan, enhancing overall financial flexibility.
- Shared Financial Responsibilities: Co-ownership means that costs associated with purchasing and maintaining the property (e.g., down payment, closing costs, mortgage payments, taxes, repairs) are shared. This can lessen the financial burden on each individual, providing more breathing room in their personal budgets for other investments or expenditures.
- Diversification of Investment: Co-owning a property can be a form of investment diversification. If the property increases in value, each co-owner benefits from the appreciation, contributing to their financial growth and security. Additionally, if the property is used as an investment (e.g., rental property), the income generated can provide a passive income stream.
- Potential for Conflict: While there are financial benefits, co-ownership also poses risks, such as disagreements over property management, expenses, or eventual sale. These conflicts can strain relationships and potentially impact financial decisions and freedom if not properly managed through clear, legal agreements.
- Limitation on Individual Control: Co-ownership might limit an individual’s control over the property. Decisions about the property, including selling, refinancing, or altering it, require agreement from all owners, which can limit individual freedom and complicate personal financial planning.
- Impact on Future Financing: Being part of a co-ownership agreement might affect an individual’s ability to obtain further financing. Lenders consider existing debts, including mortgages for co-owned properties, which could limit borrowing capacity for other personal or investment properties.
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