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16 Jul 2019

Its a dream come true for you and your friend, purchasing a property can be the ideal time to enter the property market - But there is a few things to consider before signing on the dotted line. There must be a good understanding and agreement during this process, not just in buying but selling as well. And banks do offer joint home loan packages, but before you opt to acquire property with a friend you need to have an honest discussion to establish the boundaries and expectations of what is essentially a business relationship – what do you each want to get out of the purchase; how will you fund it; how long do both or either of you plan to live in the home and what happens if one of you wants to exit the relationship before the other one is ready to move on?

Then it is a good idea to put everything you have agreed into a legal co-ownership agreement drawn up by your attorney. You may also need to change your will and take out special life insurance to cover your obligations should you die while the agreement is in force.

The next step, is to seek help from a reputable bond origination company to secure pre-qualification for a home loan before you go house hunting. Taking this step ensures that as potential homeowners you know how much you can afford to spend and how much cash you will need to cover any deposit required, your bond registration fee and the costs of transfer.

“Pre-qualification also signals to sellers that you are motivated buyers who are able to finance the purchase and thus puts you in a stronger position when it comes to negotiating price.

When you are ready to buy, an originator will also ensure that you obtain your home loan at the best interest rate possible, which is important because it can make a really significant difference to the cumulative cost of a property over the lifetime of the loan – and to the “profit” you will make should you decide to sell the property.

Currently, the average variation between the best and worst interest rates being offered on the applications that we submit is 0.5%, which may not seem like much of a difference, but on a 20-year bond of R1.5 million, for example, it translates into a potential saving of more than R120 000 in interest, plus a total of about R6 000 a year off the monthly bond installments.

However, co-ownership responsibilities don’t end there, such arrangements also demand meticulous record keeping to track each person’s contribution to the joint venture, even if your co-buyer is a romantic partner. These should include the deposit and transfer costs as well as ongoing payments like the monthly bond installments, any maintenance costs and the utility bills.

You might also have decided to split your monthly costs differently, with one partner paying the bond installment and one covering the household running costs and it is very important to keep exact track of these to avoid any dispute later on about how the proceeds of any sale should be shared.

And finally, you need to remember that everyone involved in the purchase will be legally responsible for the bond repayments, so that if one person defaults, the others in the partnership will be liable to cover their share or risk losing the property – which is one of the key reasons why there needs to be a high level of trust in any co-ownership arrangement.