Buying a home with a partner before getting married is a lot more common than it used to be.
According to a study by Mozo, 23% of Australian couples who had purchased a property together did so before getting married. And the average age of first homebuyers is now lower than the median age of marriage.
So in other words, if you’re thinking of buying a home with your partner, you’ll be joining thousands of others who have done the same.
But it’s not without its complexities, and it’s important to be aware of the financial and legal implications.
If you’re thinking about buying a home with your partner, then this guide will tell you everything you need to know.
Here’s what we’ll cover:
- How property ownership works when you’re in a de facto relationship
- How to prepare for buying a home with your partner
- Ownership structures and how they work
- And much more.
So if you and you partner are ready to start the journey of homeownership, then this is for you.
Let’s dive in.
Table of Contents
Watch the video: Buying A Home With A Partner
How property ownership works when buying a home with a partner
In the eyes of the law, de facto relationships and marriages carry similar weight when it comes to property ownership.
The Family Law Act 1975 defines a de facto relationship as one where two people, who are not legally married or related by family, live together on a genuine domestic basis.
So, the government technically declares a de facto relationship as a party living together for 2 years. However, banks will consider you to be in a de facto relationship if you’ve been living with your partner for at least 3 months or if you intend to live with your partner in the future.
This view has a lot of implications, not just if you’re buying a property together but if you’re buying on your own. If you are applying for a loan by yourself but living with your partner and state on the application that you are in a de facto relationship, the bank no longer sees you as a single person paying your own bills. They will say you are now looking after the living expenses of 2 adults, which will reduce your borrowing capacity.
If you’re considered de facto, your living expenses might increase from $1,900 a month to $3,000 a month, which is why your borrowing power comes down. Now, not all banks are the same in the way they view this. Some lenders will not increase your living expenses if your partner is working.
But, if you are buying with your partner, the bank will assess your joint income and savings, which will increase your borrowing power.
In the eyes of the law, de facto relationships and marriages carry similar weight when it comes to property ownership. So, in other words, buying a home with your partner is the same as buying a home with your husband or wife, at least as far as the legal system is concerned.
Preparing to buy a home with your partner
Buying a home with your partner is a huge financial decision.
To make sure that you’re ready to buy a home and that you’re making the right decision, there are a couple of things we recommend doing:
- Make sure you’re on the same page financially
- Be prepared for the responsibility of a home loan
- Have some uncomfortable conversations
Let’s take a look at each of these in more detail.
Make sure you're on the same page financially
Before you dive into the deep end of a joint home loan, we recommend making sure that you’re on the same page in terms of financial habits and responsibilities.
You may already be sharing financial commitments with your partner. If so, great! You should hopefully have an accurate picture of how they are with their money.
If not, here are some things you may want to consider sharing before buying a home:
- Rent or lease payments
- Utility bills such as electricity, water, and internet
- Groceries and household items
- Joint bank account for shared expenses
- Car payments or other loans
- Saving for the home deposit
Be prepared for the responsibility of a home loan
A home loan is a long-term commitment with significant financial implications.
Before you commit to buying a home, make sure that you’re ready for the responsibility.
Here are some things to consider:
- Being ready for a home loan is more than being able to afford the monthly repayments
- Are you prepared for potential interest rate rises in the future?
- Does buying a home fit in with the long-term goals for you and your partner?
Uncomfortable conversations: how will you handle things if the relationship ends?
When you’re in the throes of love and the excitement of buying a home together, it’s easy to overlook the possibility of a relationship breakdown.
However, it’s crucial to have these uncomfortable conversations early on.
Discussing what happens if the relationship ends can help prevent potential disputes and ensure a smoother process if you do decide to part ways.
When buying a home with a partner, it’s important to establish ground rules and have a clear agreement about property division in case of a breakup.
This should include details about how mortgage payments, maintenance costs, and other expenses will be divided, as well as what happens to the property if you separate.
The three key factors to consider when buying a property with a partner
Buying a property with a partner can be complicated, but really it comes down to four key factors:
- How much will each partner contribute to the deposit?
- How will the loan repayments be divided?
- What will be your exit strategy if things don’t turn out as you hope?
- What is the best ownership structure for you?
Let’s take a look at each of these in more detail.
How much will each partner contribute to the deposit?
You may want to contribute equally to the deposit, or agree to contribute a fair amount based on your earnings and financial situaion.
How will the loan repayments be divided?
As with the deposit, you should discuss how you will be sharing the cost of repayments. Will you share equally, or contribute a portion based on how much you earn
What is the best ownership structure?
The two most common ownership structures are joint tenants and tenants in common.
In a joint tenancy, both partners own the entire property together. If one partner passes away, the property automatically goes to the surviving partner, regardless of what’s stated in the deceased partner’s will. But the downside with joint tenancy is that you both own the property jointly and equally, meaning that if you do sell the property, it won’t matter if you put in more deposit than your partner; both of you own an equal share.
In a tenancy in common, each partner owns a specific share of the property, which can be equal or unequal. If one partner passes away, their share goes to their estate and is distributed according to their will.The only issue will come up when you want to inherit your partner’s share, as you will have to go through a transfer process.
But on the other hand, if you decide to split up and sell, you will get your share of the property under tenants in common. So if you own 90% and your partner 10%, then when you sell the house, you get 90% of the equity and your partner 10%. This is a better approach because then you don’t need to worry about creating other financial contracts.
Property share structure when buying with a partner
One solution to deal with all the complexities of buying together with your partner is to use a structure called property share. This isn’t something that a lot of banks do, but some lenders can offer this option. Effectively, you get a loan in your name only, with your partner being the guarantor. Your partner does the same, and you cross-guarantee each other even though both of you own the property.
What does this look like?
Say you bought a property with your partner for 500,000. Typically, you would get a loan of $400,000, and the loan is in both names. But in the property share model, the bank cuts that $400,000 in two parts. Partner A gets a loan for $200,000, and partner B gets a loan for $200,000. In this case, you are only responsible for your share of the loan.
The nice thing about this structure is if you separate, you’re only responsible for the $200,000, and the partner is responsible for theirs. So if they stop paying, it’s their responsibility (still guaranteed by your property), but it helps protect your credit rating.
Now, the other thing to consider is if you are going to buy a property with your partner and don’t want to do the property share, you may want to start with baby steps. So, maybe share a joint bank account and savings to begin with. This can help you see what it’s like to have your finances intertwined and help you decide whether or not to go ahead with buying together.
Guarantor Home Loans when buying with a partner
For many first home buyers, having a guarantor can make the dream of homeownership a reality sooner.
A guarantor, often a parent, uses their own home’s equity to provide additional security for your home loan.
This can help you avoid the cost of Lenders Mortgage Insurance (LMI), which is typically required if you’re borrowing more than 80% of the property’s value.
If you plan on using a guarantor when buying a home with a partner, you’ll need to be extra careful about what happens if you break up, as your parents will be financially entangled in the situation.
Read more: Guarantor Home Loans
Expert advice: the key to successfully buying property with a partner
Buying a home is likely one of the biggest financial decisions you’ll ever make, and it’s even more complex when you’re doing it with a partner. That’s why it’s crucial to seek expert advice. Professionals can provide you with the information and guidance you need to navigate the process confidently and make informed decisions.
Here’s who can help:
Mortgage broker
A Mortgage Broker can play a vital role in helping couples find the right ownership structure and loan to suit their unique needs. They can guide you through the process of applying for a home loan, help you understand the different loan options available, and assist you in finding a loan that suits your financial situation and goals.
Financial planner
A financial planner can also be invaluable, especially when multiple parties are involved. They can help you structure your loan in a way that protects all parties, plan for the future, and ensure that your home purchase aligns with your overall financial goals.
Lawyer
A legal professional can help you understand your rights and responsibilities, guide you in setting up the right ownership structure, and assist you in drafting any necessary agreements, such as a co-ownership agreement.
Key points to remember when buying a property with a partner
The trend of buying property before marriage is becoming increasingly common in Australia.
While this path offers many advantages, such as the ability to pool resources and enter the property market sooner, it also comes with its own set of complexities.
Understanding these implications is key to navigating the journey of homeownership successfully.
From discussing financial commitments and setting ground rules to choosing the right ownership structure and preparing for the unexpected, every step of the process requires thoughtful consideration and mutual agreement.
Given the financial and legal implications of buying a home with a partner, seeking professional advice is crucial.
Whether it’s a mortgage broker, a financial planner, or a legal professional, their expertise can guide you through the process and help you make informed decisions that protect your interests.
Remember, buying a home is not just a financial decision; it’s a commitment that affects your life in many ways.
So, take the time to understand the process, communicate openly with your partner, and seek the advice you need to make this significant decision confidently.
Thinking about buying a home with your partner? We're here to help
If you’re feeling overwhelmed or unsure about any aspect of buying a home with your partner, remember that help is available. Just give us a call on 1300 088 065 or request a free assessment with one of our expert brokers.
We have helped thousands of Australians to buy their first home and we’d love to help you too. .
Remember, the path to homeownership is a journey, not a race. Take the time to understand each step, make informed decisions, and seek professional advice when needed. Your dream home is worth it.
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