Joint mortgages: How to share a home loan with a partner

With the Australian cash rate and property prices reaching new highs, many people may feel that owning a home is impossible. However, property ownership isn’t an impossible dream if it's done with someone else. 

Many first time home buyers work with significant others, parents, siblings, or friends to save up to buy a home. Joint home loans come with many advantages, such as increasing your borrowing power and reducing the cost of your home loan. 

So what do you need to know about sharing a mortgage? Let's get into the tips, tricks, and traps. 

A joint mortgage (or home loan) is a home loan with multiple people on it. This can make the property more affordable for everyone involved.

More people on the Certificate of Title mean your share of the property will be smaller, but the savings can be worth it, and co-owning property can be an important milestone in many types of relationships.

Before applying for a home loan, there are a few things you need to figure out with your co-owner.

Different types of ownership structures for mortgages

Once have a home-buying partner, you need to figure out how you will share the mortgage.

Essentially there are two options: even split, or someone has a higher stake in the property. The former is called joint tenancy, the latter is tenancy in common. These are the two co-ownership structures.

• Joint tenancy means that everyone has an even share of the property. If someone dies, the surviving tenants take the whole property. You need permission from your partner to sell or transfer your ownership share of the property.
• Tenants in common have unequal ownership of the property, and the other tenants don't have a right to survivorship. Someone will have a higher percentage of the house to their name. For example, if you contribute 60%, you own 60% of the home. You don't need permission from the other co-owner(s) to sell or transfer your share of the property.

The ownership structure tells you how much you each need to contribute to mortgage repayments and other lending costs. Joint tenancy? You and your partner each pay half. Tenants in common? You pay costs equal to your individual share.

How to share home loan costs with a partner

Paying off a home loan is more than just a home loan deposit and monthly repayments. There may be other homeownership costs to consider, too, such as:

• Home insurance premiums.
• Council rates or strata fees.
• Maintenance costs.
• Property management costs, if it's an investment property.
• Lenders fees, such as monthly or annual fees.
• Stamp duty, conveyancer fees, and settlement fees when your first buy the property.

It's important to discuss how each of these expenses will be covered between the owners. This way, everyone involved has a clear understanding of their financial responsibilities. 

After all, a home loan is a significant debt, and money troubles can be taxing on any relationship. It's best that all obligations are clearly defined beforehand, including what to do if a problem arises.

Getting approved for a home loan is a similar process to going it alone, you just need to provide paperwork for everyone who's going to be on the property title.

The main hurdle is that you’ll need to find a home loan that suits you and your co-owners. Then follow the usual steps that come with buying a new home.

Home buying process with a partner

1. Save for a home loan deposit.
2. Research and apply to any possible First Home Buyer Grants. 
3. Run a credit check (here's what to do if you or your partner has bad credit).
4. Get all your home loan application documents in order.
5. Compare home loans.
6. Apply for a home loan (or pre-approval).
7. Make an offer on a property.
8. Go through home loan settlement.
9. Congratulations! You just bought a property together.

New home buyers have a lot of things to consider, and these can be tricky if you're buying with a partner. But it's important to prepare for worst case scenarios and discuss these ahead of time so that you and your partner can navigate property problems together.

Before you get a home loan with a partner, ask each other questions like:

• What happens if one or both of us lose our incomes? Do we have financial safety nets, like income protection insurance or life insurance?
• Will we refinance at some point?
• How will we pay for renovations? What sorts of changes to the property do we want to do, if any?
• In this our first home or forever home?
• What happens if one of us dies? What happens if we both die?
• Who inherits our shares of the property?
• What happens if the property gets damaged?
• Do we need home insurance?
• What happens if we separate, break-up, part ways, or divorce?
• How will our ownership change, if at all, during retirement?
• If we're living in the home together, who else (if anyone) lives with us?
• If we're renting out the home as an investment property, who does the property manager contact with problems? Who arranges for repairs or inspections?

Talking about some of these topics may be tough, but it's important to agree on these things beforehand. Having plans in place or wishes known can save you and other people a lot of heartache later. 

Sometimes partnerships don’t work out, whether they are romantic or business ones. However, removing someone’s name from a home loan isn’t as easy as striking their name out or simply paying out their share of the mortgage.

In Australia, removing someone from a property mortgage means that you and anyone else staying on the property title will need to refinance the mortgage.

Refinancing means means you’ll have to meet the lender’s borrowing criteria without the extra income of your former partner. You could run into a few issues:

• Your borrowing power reduces. Your debt-to-income ratio and genuine savings might change without the input from your ex-partner. 
• Your loan-to-value ration (LVR) increases. Having a higher LVR means that your home loan interest rate could change and you could lose home equity. If you need to borrow more than 80% of the property's value, you may need also need to pay Lenders Mortgage Insurance (LMI).
• You need to pay discharge costs or break fees. Refinancing means discharging your mortgage and coming onto a new one, and there are probably lending charges involved. If you're breaking a fixed term early, you may have to pay break fees.
• Your mortgage gets extended. A change in your borrowing power and finances means that your mortgage may take longer to pay off. 
• You'll need to get a property valuation. Your mortgage lender will want to know the market value of the home, so you'll need to get it appraised with a property valuation. Again, there could be fees. 

Once you re-qualify for your mortgage, however, you'll be able to refinance and tweak it to suit your new needs and financial situation. 

Before buying someone out of a joint mortgage, you need to figure out how much the property is worth. Your property value changes over time due to capital gains or losses, so this will affect the buyout.

Here are some tips for how to buy their share of the property:

• Figure out how much each person has contributed to the property.
• Settle on a property value and payment price.
• Work out how you will share any stamp duty (or land transfer duty) costs. 
• Get legal advice from a solicitor or conveyancer, as well as your lawyer. 

Once all this is taken care of, you can arrange to transfer the money necessary to buy them out and apply to refinance your home loan.

Ready to a buy a home together? Compare first home loans in the table below.