Co-owning a home can be a great way to get your foot on the property ladder - but just like with every other huge financial commitment it should be undertaken with a clear mind and an understanding of what exactly is expected from all the parties involved.
Applying for a joint bond
When evaluating joint bond applications, banks adhere to normal credit and affordability assessment criteria. However, the difference is that the profiles of all the co-applicants, as well as their combined income, are taken into account.
Here are 4 things you need to keep in mind when you are applying:
- Good credit record - Although you will be applying jointly, it is still essential for all parties involved to ensure they maintain a good credit record to qualify and get a favourable interest rate.
- Financial discipline - Home loan instalments should be honoured by all parties involved - a setback from one individual can potentially harm everyone and negatively affect their credit records. There should also be an agreement on the person's account which the instalments will be debited from. This particular account should always have funds available on the instalment date,” says Ramatong.
- Common objectives - All parties entering into the agreement must share common objectives to avoid complications. For example, if one person decides to pull out of the home loan agreement the remaining parties will have to go through the whole process again. To avoid this make sure that all parties involved share the same goals.
- Unforeseen risks - We have no control over those unforeseen life events that might occur and therefore everyone involved needs to have life and disability cover to ensure that the home is protected when something happens. While some banks have this as a standard requirement, not everyone does and therefore the responsibility lies with the applicants to ensure this is in place.
Get prequalified and apply for a home loan here
Who owns what
Joint legal ownership automatically provides each owner with equal shares in the property, which is commonly known as co-ownership in undivided shares and they are jointly and severally liable for the debt.
But it is possible for the owners to enter into an agreement whereby each party acquires the property in different shares, for instance, one owns 80% and the other 20% of the single property and this information must be recorded in the title deeds of the property.
Although this form of purchasing and of ownership has many compelling advantages, it must be borne in mind that there will almost certainly come a day when the property will be sold, possibly not always under positive circumstances. This will be much more difficult without an existing agreement in place - and creating one retrospectively is not an easy task.
Whether by choice or not, the dissolution of any partnership is likely to be emotionally charged and this will be significantly exacerbated if there isn’t an agreement in place regarding the jointly owned property.
The most important aspects required in a partnership agreement, whether business or personal:
- Outline your contributions - Your contribution as a partner includes cash investments, physical property, such as furniture, and your home.
As far as possible, ascribe a value to your contributions and also decide who pays which costs for the property. It’s advisable to keep a record of all payments, maybe even to the point of having financial statements. It’s an investment and it must be treated as such.
If there is an income stream, establish how this will be divided.
If the use of the property is to be shared, such a holiday house or co-habitation (not as a couple), who gets to use what, and how will that be carried through to the division of the costs? - Decide who makes the decisions
Decision-making can slow processes down, especially in business environments, although indecisiveness can easily cause many a family dinner to be ruined.
Decide upfront on how decisions will be made, especially if no consensus can be reached. As difficult as it may be, consider what would happen if there is a breach of trust or a conflict of interest? - Nip conflict in the bud
Disputes are an inevitable part of life, however, if left unresolved, they can lead to serious consequences for your business or your relationship. To protect these relationships, you must ensure your partnership agreement includes a section on disputes and how these will be resolved. Such as via voting rights, final say, through mediators or a consensus.
Every relationship goes through difficulties and if these are dealt with, then the partnership has every chance of continuing but, if not, it could lead to dissolution. - Divvy up the assets
In a business scenario, this means determining how you will distribute your capital gains and/or profits and how will you deal with losses and additional cash flow requirements?
On a personal level, this could refer to how your assets are distributed to your family, on your death, for instance. Are you going to use a will or a trust to minimise estate duty? Will your primary residence be sold, and the profits after debts and other taxes divided equally among your children or beneficiaries? Or will it be put into a trust, so they are able to make use of it in perpetuity?
