13 Mar Friends With Benefits Fulfils the Australian Dream
SOMETIMES life doesn’t go according to plan. Your young adult assumptions of buying a home with the one you love dissipates into the singleton’s life of bouncing from one rental home to the next. Not only are you putting off building your own wealth portfolio and reducing your net worth in retirement, you are not living in a place you can ever really call ‘home’. You can wait in hope for ‘the one’ to appear to fulfil the typically Australian dream of home ownership or you can chart another course to ferry you on the same journey. If the thought of raising enough deposit to avoid paying mortgage insurance or affording to buy in a better location as well as meet mortgage repayments puts you off, take heart. A growing number of lenders are prepared to cater to the growing trend of lending to ‘friends with buying benefits’. However, pooling your resources with a carefully chosen buying partner among your friends brings a hefty list of do’s and don’ts. It starts with a candid conversation and knowing you can count on them.
- Does your friend consistently meet their responsibilities?
- Do they have a good measure of accountability and reliability?
- What do they hope to get out of making a home purchase with you?
- Can you live together or agree on a tenancy arrangement if they are not going to reside at the property?
- How long do they intend to own the home before selling it?
- What agreement will you have in place if property prices fall or rise rapidly?
- Will you set up a joint bank account for repayments and expenses?
Should your initial discussion find you sharing the same mindset, you will obviously need to sit down with a mortgage broker to assess your goal and lending criteria and find out your most suitable lenders for your circumstances. Legalising your arrangement is advisable for many reasons including ones you may not have thought of: Such as, what decisions will you make if one of you meets a life partner and wants them to move in? Do you need to consider a cohabitation arrangement? Also, have you discussed stating on the contract that you are tenants-in-common instead of joint owners? What will happen to your share of the property in the worst case scenario of a death? Gaining specialised legal advice is a good third step after a frank discussion with your buying partner and meeting with your mortgage broker. Famous industrialist Henry Ford was reported saying, ‘The time to buy property was 20 years ago and the next time to buy is today.’ Putting off your buying venture is the second top thing to finding a way to realise your dream in a small risk way today. So, let’s look at the pros and cons of buying with friends.
|Pooling resources to put up a proud deposit||You’re responsible in case your friend defaults on their share of the mortgage payments. If you can’t make up the difference, the bank may exercise its right to seize and sell the property.|
|Sharing the cost of mortgage payments||Future lending will consider the debt on the whole mortgage, not just your share, which may impact your ability to buy an additional home.|
|Sharing costs of maintenance, repairs, council rates||The health of the friendship. Your friendship could bear the tension over any interruption to your friend’s earnings.|
|Affording to buy in a better location||You’ve got to check in first. It’s like living with the oldies again. Can your new partner stay over three nights a week? The answer could rely on your cohabitation agreement, if you have one.|
|Possibly not having to pay mortgage insurance||Detailed record keeping: Receipts and all documents and agreements meticulously kept will help in the case of an unhappy ending.|
It’s my job to highlight worst case scenarios and downplay the great advantages of getting into the property market today by buying a home with a friend, just in case. But, like many things in life, the right person and the right circumstances can foreground an exciting arrangement of building security and having fun on the way. Like most things, it takes careful planning. For more advice about entering a mortgage with a friend