Buying a home is expensive, and families sometimes put their money together to purchase a house. While financial support and co-ownership have benefits, problems and disagreements can occur. If you are thinking about investing in property with your family, here are some useful tips.
Family assistance
One way to help a family member buy a house is to lend them money for their home loan deposit. Both parties need to agree on how long it will take to repay the loan and whether or not it is interest-free. Make sure the agreement is written down and keep clear records of payments.
If a grandchild or child can't afford a deposit on a house, sometimes grandparents or parents decide to advance some of their inheritance without expecting it to be paid back. It is still best to have a written and signed record of the transaction even though it is a gift, because health and circumstances can change and disputes can occur.
If money has been lent to a couple by a relative and the couple split up and sell the house, the lender may not want a share of their money used by the ex-partner. A written record of the terms of ownership and loan repayment conditions is useful in such a situation.
Security
A family member can act as a guarantor to provide security in order to have a home loan approved. This means that if a property or other item is used for security against a mortgage and the homeowner cannot repay the loan, the guarantor may have to sell that asset to pay the bank. The asset needs to be assessed by a professional valuer to make sure it is worth enough to cover the cost of the mortgage. Using a relative as a guarantor puts them at financial risk, so think carefully before taking a step like this.
Co-ownership
If your money is invested in someone else's house it makes sense to have ownership in the property so you can protect your investment. It is ideal to have your name on the title in case the other owner is not managing their mortgage payments. You will be advised about legal issues and consulted if the property needs to be sold or a second mortgage taken out.
Legal documentation should make it clear about who makes payments for the loan, utilities, rates and repairs. A lawyer can also help you work out how to divide up the money if the home is sold in the future, or whether you can buy shares in the property if one of the owners wants to sell them.
If parents co-own a house with one or some of their children but not others, disputes can arise after their death as to how the remaining money should be divided between the siblings. Keeping an updated will and consulting with a lawyer can help to solve these problems in advance with minimum fuss.
Get advice
While it can be a good feeling to buy property together or help out the family financially, circumstances change, people get sick, and couples don't always stay together. It is best to think realistically about the future and document all the details and legal agreements so that your property venture does not become a nightmare.
I am here to answer any of your questions about buying property or getting a loan, so give me a call today if you'd like some answers.
