Tips For Purchasing A Home With Someone Else
Want to buy a home and get on the property ladder, then purchasing with someone else could be the way forward. Here is how to do it.
Prior To Submitting Your Mortgage Application
It is easy to get caught up in the excitement of buying a home, focusing on what your new life will be like. When you take out a mortgage, however, you are making a major financial commitment. It is extremely important to think about the overall impact of the loan - both on your life and on the life of anyone else who is buying the home with you.
Although most lenders have their own policies for dealing with mortgages that have more than one borrower, there are a few things that they usually have in common. In most cases, everyone whose name appears on the mortgage will need to meet the lending standards of the bank. If more than two people are applying for the loan, however, the bank will usually only consider the income of two of the applicants. That means that the bank will not only look at the credit score of each applicant but also their spending habits and outstanding debt. According to Guarantor.co.uk, if any single borrower defaults on the loan, the other borrowers will be responsible for paying it back.
How The Property Will Be Owned
When purchasing a property with someone else, a decision needs to be made in terms of how the property will be owned. The two most common options are to become joint tenants or to set it up as tenants in common. If you are a young person buying your first home, you may also be able to set your mortgage of as a joint mortgage, having your parents act as guarantors on the loan.
Owning The Property As Joint Tenants
Typically, this option is used by couples who are in a relationship or who are married. Both parties:
* Have the same property rights
* Have equal equity in the property
*Are granted full ownership of the property by default if the other owner dies
Owning The Property As Tenants In Common
This purchasing option is usually used by people who are buying a property with other family members or with their friends. Each party:
* Has the opportunity to own a different portion of the property
* Does not automatically assume ownership if any of the other tenants die
* Has the opportunity to designate who will receive their share of the property after their death through their will
When entering into a purchase agreement as tenants in common, a deed of trust will need to be set up by your lawyer.
Having A Family Member Act As A Guarantor
Another option for purchasing a property with someone else is to have a parent or a close member of your family act as a guarantor on the loan. By doing so, you could qualify for a bigger mortgage. You also may be able to get a better interest rate on your loan.
In essence, when someone signs on as a guarantor, they agree to pay back the mortgage if you fail to meet your monthly payment obligations. Not only do you need to be able to repay the loan on your own but the guarantor will also need to be able to show that they can take over the payments. They also need to prove that they understand the legal risks and ramifications of becoming a guarantor by showing that they have sought out legal advice.
Further down the road, if you find yourself in a better financial situation, you can always refinance your mortgage, freeing your parent or family member from their duties as guarantor.
Once you fully understand the responsibilities that come along with taking out a mortgage, you can begin the process of applying for a loan. Try using our free calculators to determine how much you will have to pay each month. Once you decide how much you want to borrow, you can then submit an Agreement in Principle (AiP) to discover whether or not you qualify for the loan that you need. At that point, if everything looks good, we can provide you with a dedicated advisor who will walk you through the process of applying for a mortgage.
- Aleksandr Krutov