Buying a house with family or friends
Should I buy a house with a group of friends? Let’s take a look at some of the legal and financial considerations.
Do you get a creeping sense of dread every time you look at your savings account because your home deposit target has inched out of reach again?
You’re not alone, but what can you do about it?
One option is to looking into buying a house with a friend or a family member. This way you can share the financial burden and both get a foot onto the property ladder.
Win win? Well, it's not all plain sailing as there are some big financial and legal implications to consider when buying a house this way. Especially if the relationship goes south. Here are some things to consider when deciding if shared ownership is an option for you.
How does this work?
This type of ownership is known as a tenants-in-common ownership. On very simple terms, buying as tenants-in-common means buying a house with another person, or people, without being in a stable relationship with them.
It’s nothing new – investors have been doing it for ages. Rather than buying a house jointly, as for example a married couple would, tenants-in-common each have separately transferable interests, and separate shares of the property. Always ensure that this status is specified on the title.
You'll need to partner with someone realiable if you're looking into co-ownership.
Co-buying a house in New Zealand: what you need to think about
1. Explore your mortgage options
Approaching the bank manager with your best friend and asking for a mortgage together may not be completely straightforward.
Some lenders may be very risk averse and won’t even entertain the idea. Others might allow you to mortgage independent shares, where each party owns interests in the property that may or may not be equal, but are clearly defined.
But take note: everyone is equally and jointly responsible for the loan in its entirety.
In short, always make sure you’re able to secure the loan you want before making an offer.
You should get a lawyer to help you draw up a co-ownership agreement.
2. Access legal support
When you're co-owning a house with a friend or family remember, reliability is key. Not only will you be sharing the cost of mortgage repayments, but there are many ongoing costs to consider including maintenance, insurance and council rates.
Firstly, you need to choose someone you trust, with whom you can – and must –discuss all the nitty gritty details of sharing a mortgage.
However, the more important step in covering yourself is signing a co-ownership agreement. Hire a lawyer to draw this up for you, so you can ensure all the legal checkboxes are ticked. Among the common issues covered on a co-ownership agreement are:
- Who is bound by the agreement?: this will the friend or family member, partner or anyone else who's part of this house purchase.
- How much each person is putting forward?: are you all going for equal shares with an equal investment? Or will some people have a greater stake?
- What happens if one party defaults on a payment?: will one of the other parties step in and make this payment? If so, how will that impact the agreement structure you have in place?.
- How will you handle disputes?: it's a good idea to consider areas of contention other than payments, and how you'll deal with disagreement.
- Division of responsibilities: these might include maintenance and ensuring bills are paid on time. This could also cover what you'll do if one party wants to make renovations that the others aren't keen on.
- What happens if one party wants to sell?: does everyone need to agree? How will they be bought out of their share?
- What happens when everyone wants to sell?: how will you divide the profit or loss?
3. What if it goes wrong?
What if the dream of living in your own house together actually turns into a nightmare when the other person changes their mind and takes off?
If you’re a joint borrower, then you have to pay the bank back all of what you borrowed, not just your share. If you don’t, the bank can sell the property as a mortgagee sale.
Also note that, as you’re liable for the entire amount of the loan, your borrowing power could be affected for future loans.
Your co-ownership agreement should cover dispute resolution, and what happens if someone's plans change.
4. Plan ahead
The best way to enter an agreement of this type is to discuss every possible scenario, positive or negative, before signing up. That includes what you’ll do if someone defaults on the loan, if they want to sell before you do, or if an expensive problem pops up.
Work it all out, in great detail, before it actually happens. Cover yourself legally as much as you can, and take great care.
If you’re planning on living together in the home, make sure you agree on how you want to live. Have the hard conversations around lifestyle, long-term plans, and expectations of each other to avoid any problems in the future.
While there’s a lot to consider before buying a home with friends or family, with good communication and the protection of a robust legal agreement, it could be a great way to make your home ownership dreams a reality.
*This information is not intended as a complete guide, as it doesn’t consider your individual needs or financial situation. Trade Me accepts no responsibility or liability for any inaccuracies or omissions in the content. Always obtain independent legal advice before buying or selling property.
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