Co-buying your first home: A good idea?

A great idea…

Buying your first home with others certainly seems to make sense – sharing the expenses and repayments with someone else can make property ownership more affordable.

• Being able to pool resources for the deposit means you can buy now, rather than waiting.
• Having a deposit of more than 20 per cent of the purchase price negates the need for lenders mortgage insurance (LMI).
• Greater buying power gives you more choice in location, size and style of property.
• The ongoing costs of owning a home (rates, repairs and insurance) are halved, at least.
• After a few years you’ll have built up enough equity to be able to buy your own place.

Or maybe not…

Unless there are clear guidelines that everyone adheres to, co-owning property becomes difficult when someone defaults or it’s perceived to be inequitable.

Will you all be living in the property? Shared accommodation can strain the best of friendships, so you’ll need to set some strict ground rules for privacy, pooling and sharing of resources, and how to deal with maintenance and financial issues.

Life changes, so it’s critical there is clear understanding and documentation between all parties concerned. What if someone gets married and the spouse doesn’t want to share the house; or someone gets offered the job of a lifetime overseas, is injured or becomes unemployed?

Most lenders require that all borrowers take responsibility for the entire debt, which means that if one person defaults, the others will be expected to make up the difference. Think about how you would cover that cost in the worst-case scenario.

Put it in writing

Firstly, clarify what, where and why you’re buying. Who will live there and under what arrangement?

Have a legal co-ownership agreement drawn up setting out the rights and responsibilities of each co-owner and dealing with all the issues you can think of, such as division of ownership and what happens if one party wants to sell. For clarification of ‘tenants in common’ and related issues, check out what the Australian Taxation Office says about joint ownership of an asset for capital gains tax purposes.

When you finance through a co-ownership agreement, lenders will consider each borrower separately – some even allow the loan to be split so each party can make separate repayments.

If you’re house-sharing and the arrangement starts to deteriorate, be prepared to move and rent out the property so it’s a straightforward financial arrangement.

It seems like a good idea: joining up with family or friends to get your collective feet on to the property ladder. But if you’re to come out of the experience with friendships and finances intact, make sure you set the ground rules first.