Teaming Up to get a Foot on the Ladder
It’s becoming more and more common these days to see friends or family members ‘going in on’ a mortgage together, as a way to get on the property ladder sooner.
If you’re interested in getting a mortgage with someone who isn’t your spouse, it’s important to fully understand the process and the potential risks…
FIRST, THE POSITIVES
On the plus side, teaming up generally increases your borrowing power – the amount a bank or lender will allow you to loan. Awesome!
You’re also able to pool your savings, meaning you’ll get to your deposit goal faster.
Co-ownership also allows you to divvy up the ongoing property costs like council rates and insurance.
THE RISKS OF BUYING WITH ANOTHER PERSON
While buying with someone else can make homeownership much more achievable, it also comes with risks. It’s crucial to have a clear agreement in place in case circumstances change. Some key considerations include:
Exit Strategy
What happens if one of you wants to sell but the other doesn’t? If one party cannot afford to buy the other out, this can create significant financial and legal complications.
Financial Disputes
Unequal contributions to the deposit, repayments, or home maintenance can lead to disagreements if not clearly outlined in advance.
Legal Protection
We strongly recommend seeking legal advice and drafting a co-ownership agreement that covers, at a minimum:
How ownership shares are structured.
What happens if one person wants to sell.
How mortgage repayments and property costs are shared.
Once you’ve worked through these factors, you’ll be ready to start the mortgage application process. And here’s how that plays out…
STEP 1: PRE-ASSESSMENT – HOW MUCH CAN YOU BORROW?
The first step is understanding how much you and your co-buyer(s) might be able to borrow together. I’ll gather your financial details including your income, expenses, existing debts, and deposit contributions. Then, I conduct a pre-assessment to determine your joint borrowing power and which lenders are best suited to your situation.
Additionally, I consider:
Who do you have an existing relationship with?
Some banks are more open to lending if you’re already a customer of theirs.
They may not be prioritising applications for new customers (‘non-main bank clients’) and/or their policies may be more stringent for new customers. Some banks are also reluctant to process pre-approvals for non-main bank clients - this can affect your ability to get a pre-approval for your mortgage.
Are there any restrictions we should be aware of, like Debt-to-Income Ratios?
Some lenders impose caps on borrowing, based on the ratio of your total debt to your gross income (the amount you earn before tax).
STEP 2: MORTGAGE OPTIONS & PURCHASE PRICE
Once we determine your potential loan amount, we add it to your mortgage deposit to arrive at a realistic purchase price. (I’ll also provide guidance on expected repayments, so you have a clear picture of affordability.)
Depending on your circumstances, we’ll explore different mortgage products and offerings, including:
Kainga Ora First Home Loan
If you qualify, this could allow you to buy with a smaller deposit for your mortgage.The Best Loan Structure
We’ll carefully consider the best mortgage structure for your group’s situation – whether that be a joint loan, separate loan portions, or something more customised.Cash Contribution
This is the lump sum of cash (normally in the thousands of dollars) that a bank might offer you, as an incentive/reward for you taking out a mortgage with them.Offset Mortgage
Offset Mortgages can help significantly reduce the interest you pay over time.Getting the Loan Term Right
Ensuring your mortgage is structured to be paid off within a specific timeframe. This can be particularly relevant when teaming up on a mortgage.Checking for Loyalty Rewards
Some lenders offer programs like Airpoints that could provide extra benefits.Solutions with Flexibility
Options such as allowing lump sum payment allowances can help you reduce debt faster.
STEP 3: MORTGAGE APPLICATION PROCESS
Once you’re ready to proceed, we move into the formal mortgage application stage. This involves:
Signing an agreement so I can act on your behalf with the bank, and
Providing supporting documents, including:
Income verification (payslips, employment contracts, business financials, IRD income summaries, or any other income from investments or government benefits).
Deposit verification (proof of savings, gifted funds, or KiwiSaver withdrawals).
Three months of bank statements and any existing loan/credit card statements.
Identification documents.
Draft or Conditional Sale and Purchase agreement (if you've already made or are looking to make an offer on a specific property.)
A Registered Valuation, builder's report or weathertight assessment – if you have your eye on a specific home (though these are not required in every situation.)
STEP 4: OBTAINING PRICING OFFERS
Once you've found a suitable property, I go out and obtain pricing offers from the banks, which may include discounted interest rates and cash contributions.
STEP 6: MORTGAGE IMPLEMENTATION
I’ll assist you with all the various forms and paperwork, communicate with your solicitor and bank, and ensure your mortgage is implemented smoothly.
STEP 7: REGULAR REVIEWS
I review your mortgage needs at key points – when you’re about to come off a fixed interest rate, for example, or if there are changes in your personal circumstances that require adjustments to your mortgage structure.
Buying a home with another person can be a smart strategy – but only if it’s done right. Over the past decade as an independent Mortgage Broker, I’ve helped scores of first home buyers through a co-ownership process, ensuring they get the best deal for their finances and their future.
Our blog is not intended to be taken as personal advice and is for informational purposes only.
Before acting on this information, contact our mortgage broker/financial advisor to ensure it is suitable for your circumstances.