Hi everyone,
My elderly mother purchased a home with government assistance “Shared Home Ownership Scheme” back in 1992. It’s a 2 bedroom weatherboard house in the outer suburbs of Melbourne. The purchase price was 55k.
The original title says “Director of Housing as to 5199 equal undivided 10,000th parts or shares and {my mother} as to 4801 equal undivided 10,000th parts or shares are proprietors as tenants in common”. So originally the government share was 51.99%, and they loaned her 48.01%. However, I don’t think she repaid the entire loan before she retired.
I contacted the Director of Housing offices recently. They said they need to inspect and perform a valuation of the property, to work out the exact % my mother owns. It could be significantly less than 48.01%. They also said they can’t transfer the loan to me. When she passes away, I’ll need to buyout the governments share, otherwise the property will be sold.
Based on recent property prices, it could be valued at $1,100,000. If my mother’s share is only 30%, that would mean I’d need 770k to buy the government’s share back.
The problem is my financial situation isn’t ideal. I’m 51 years old, self-employed. I have an online business that’s doing OK and growing. It currently makes around 5k per month profit. It should grow to about 7k per month profit over the next 6 months. I’m working hard to grow the business as fast as I can. I don’t have any property, I have no debt. I have no dependents. I don’t have any financial blemishes. Ideally, I’d like to buyout the governments share as soon as I can, before the property valuation increases too much more.
Questions:
1. Assuming I can put down a 200k deposit, is a 570k bank loan realistic for someone in my financial situation?
2. Is there any harm applying for a loan now, or should I wait until my business income, and deposit size increase?
3. Is there anyway to check how the Director of Housing is calculating the % ownership? They weren’t clear about this when I asked them. I couldn’t find a formula in the documentation. They just said they’d inspect the property, and then determine the % ownership after their assessment.
4. Should I be seeking professional advice on how to buy-back the governments share of the property? If so where can I find reputable advisors in this area?
5. Are there any other financing options in this situation?
Please feel free to offer any ideas or suggestions.
You don’t mention if your mother has passed away or not.
1. You won’t need a deposit if you are inheriting your mothers share of the property. As a guide roughly 6 times your annual gross income will be the max you could borrow.
2. Has probate been granted? Who is the executor?
3. Yes, ask for the terms of the agreement and a work out of their reasoning.
4. Legal advice might be a good idea as would credit advice if you are getting a loan.
5. Yes, you could do a few things potentially.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Terry,
Thank you for your responses.
You don’t mention if your mother has passed away or not.
No she hasn’t. But I have the option of buying out the government’s share before then, if I can finance it.
1. Does the “roughly 6 times your annual gross income” depend on whether you live in the property?
3. I can’t find any documentation describing terms of the agreement, other than that described on the title. They were vague about this when I asked them. I’ll ask them again.
The big unknown is the government’s % ownership and what valuation they’ll use. Apparently ‘% ownership’ also factors in other things like the condition of the house.
I also don’t know how much of the loan she paid off before she retired and how that factors into their “% ownership” equation. I can’t find any loan statements in her paperwork. I might ask them for that information as well.
Just one more question…
Do you know if it’s possible for me to cash in part of my super. I have a self managed super fund (SMSF). If I could do that, that would increase the size of my deposit, and reduce the loan amount.
1. Not really because rental income would need to be paid if you didn’t live in it. very ball park figure though.
2. title will show legal ownership %. If this is to be varied due to some sort of agreement the terms of that agreement will need to be evidenced.
If you meet a condition of release you could possible access super.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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