All Topics / Help Needed! / Sharing a home loan between 4 people?

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  • Profile photo of rafael84rafael84
    Member
    @rafael84
    Join Date: 2009
    Post Count: 18

    Hi all

    Are there any limitations in purchasing say an $800,000 property (with a $250,000 deposit) with 3 other people? i.e can 4 people sign up for a $550,000 mortgage? My wife and I along with our aunty and uncle are seriously considering buying a beautiful large home in the inner city, and just quartering the repayments. Thus living close to our work places, in a great location and then we will just quarter (or half since we are 2 married couples) the profit when we sell?

    Does anyone see any problems with this? and apart from the obvious (sharing a house) why aren't other people doing the same? or are they??

    any feedback is appreciated!

    Cheers

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    There are no issues at all as long as each party understands that they are not only liaible for 1/4 of the loan but in fact they are Jointly and Severably liable for the entire loan.

    I have had a number of clients do exactly what you have suggested and we can split the loan into 4 different amounts each with their own loan name.

    Richard Taylor | Australia's leading private lender

    Profile photo of DomainDomain
    Member
    @domain
    Join Date: 2009
    Post Count: 19

    You should put in an exit strategy!
    What if their situtaion changes and wants out? All well and good but you must think of worst case scenario

    Profile photo of rafael84rafael84
    Member
    @rafael84
    Join Date: 2009
    Post Count: 18

    Thanks Richard for your information. Another question. If we say want to borrow $600,000 between us 2 married couples, can we just borrow $600,000 and then halve the repayments on this figure? or would we be forced to take out 2 x $300,000 loans and thus make repayments on this figure? As I think the first option would mean lower repayments.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    You can have one big loan or 4 little ones – It doesn't really matter to the bank. Just be aware that if the other 3 people don't pay the 4th one must. each is liable for the whole debt – which is risky legally. It will also affect future borrowings as when going for a new loan the bank will asses each person as owing the full debt.

    Also consider or try to anticipate things that can arise in the future. Like 1 couple wants to sell, but the other doesn't. The remaining couple may not have the ability to buy out the others, so what do you do. Or if your property doubles in value and all that equity is sitting there – do you agree to access the equity, let the other couple take out a LOC, or use the property as security for a new property in their names only etc. What is one of them goes bankrupt, or they divorce etc. Planning what you can do now can save arguments later.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of rafael84rafael84
    Member
    @rafael84
    Join Date: 2009
    Post Count: 18

    Great advice Terry, thanks.

    Profile photo of quickchickquickchick
    Member
    @quickchick
    Join Date: 2004
    Post Count: 168

    I agree with Terry.
    You've said you will share "the profit" but what if you need to sell at a time where the value has got down? Accept to share the loss?
    Even if it is the other couple who want to sell, and you don't?

    What happens eg if one of them dies? Do you keep paying 1/4's and the other remining partner has to pay 1/2? Could they afford that? Do they have life insurance to coevr that? (And do you?)

    How long can you live together before there is a problem? What would you do then?

    Having said all that, it may work well for you all. Just think through all the possible complications in advance. 

    quickchick

    Profile photo of rafael84rafael84
    Member
    @rafael84
    Join Date: 2009
    Post Count: 18

    I think we will definitely sit down and agree on an exit strategy, based on all the scenarios discussed above, plus more…

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Yes death too needs to bne considered.. Depending on how the purchase is set up one person may leave their share to someone you don't like (tenants in common). What happens then!

    If you have the ownership as joint tenants then the property doesn't form part of the person's will at all, so if one person dies their share goes to the remaining 3. That will mean 1 couple will have 2 thrids ownership and more power maybe.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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