Pros and cons of a joint home loan

joint home loanWith the average house price for a first-time buyer nearly reaching the R1 million mark, few people can afford to buy a home on their own. A R900 000 home loan will require a monthly repayment of R8 800 – this is before you have even started paying for rates, electricity and water. Realistically, to qualify for the home loan one would need to have around R10 000 of disposable income after meeting other monthly obligations such as car repayments, credit cards and paying for basic day-to-day living expenses.

One option is to apply for a joint home loan. Dr Simphiwe Madikizela, Head of Special Projects at FNB Housing Finance says a joint application can help increase your chances of qualifying as both parties’ incomes and expenses are taken into account to assess the affordability based on their disposable income. However, you need to understand the legal ramifications:

Pros:

  • There is a high likelihood that the joint home loan application will be approved if both individuals have a good credit record.
  • You can afford to buy property that one partner wouldn’t necessarily afford with their salary alone.
  • You could benefit from a good interest rate as affordability assessment is done on both parties.
  • You are only liable for half of the bond payments and legal fees.

Cons:

  • If you are not married, you will share ownership of the property with another individual once paid off.
  • If there is a default, both partners’ credit records are affected. That means if your partner stops paying their portion, your credit record is affected.
  • Should one partner want to pull out of the joint home loan agreement, a new bond application will have to be processed and a full credit assessment conducted on the application to verify affordability.
  • In addition, the home loan facility will be closed, which means you will have to pay bond registration fees for the new home loan facility.
  • Upon the approval of the home loan, the bank may require both applicants to have adequate life cover that will be ceded onto the bond.

During the application process, both parties need to sign all the necessary documents such as the offer to purchase, home loan quote and legal documents, etc.

Most importantly, the monthly debit order has to come from one account. As a result, this will have to be agreed beforehand to ensure that there are always funds available to avoid defaulting on the monthly bond repayments.

“Buying a property is a big commitment and the decision to buy with someone else should not be taken lightly. The parties need to work out all the eventualities before taking ownership as shortcomings could potentially set you back financially,” concludes Madikizela.

This article first appeared in City Press.

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