As housing prices increase, many Malaysians are choosing to buy property together with family or friends through joint home loans to make it more affordable. This approach helps share financial responsibilities and makes it easier to get a loan in today’s challenging market. But is buying property together with a joint home loan the best option? Future problems, like ongoing disagreements and difficulties, show why it’s important to think carefully before committing. It’s crucial to consider both the pros and cons before deciding on joint property ownership with a home joint loan.
Benefits of Purchasing A Home in Joint Names
- More people means more strength and options for buying a house.
Buying a property with others gives you more financial strength, making it easier to afford a better home than buying alone. Pooling resources means you can choose from a wider range of properties, including those in prime locations, with better designs, more space, and higher price tags.When you buy a house together, you also share the cost and mortgage, reducing the financial load even if the property is more expensive. Plus, with the extra savings, you can spend on decorating the house, making it more attractive. This can increase the home’s value over time, leading to higher rental income and capital gains.
- Easier approval for joint home loan applications.
Banks have become stricter with joint home loan approvals, focusing on factors like monthly income and existing debts to ensure applicants can repay the loan. For individuals, getting approved can be challenging. However, when you apply for a home loan with others, banks consider the combined income and repayment ability of all applicants. This lowers the risk of default and increases the chances of approval. Applying for joint home loans with several banks at the same time can further improve your chances of getting approved. - Lower Loan Interest Rates for Home Joint Loan
When buying a house, people usually spend years saving up around 10% of the home’s price as a down payment. However, if multiple people team up to buy a property, they can pool their money together for a bigger down payment, which could be 15%, 20%, or more. A larger down payment means you’ll need to borrow less from the bank, and this can help you get a lower interest rate on the loan.Additionally, using funds from a housing provident fund to boost the down payment can further reduce the loan amount and might lower the interest rate. With these advantages, homebuyers can get better loan terms and make future repayments easier.
Disadvantages of Buying A House in Joint Names
- 90% of the mortgage loan is inefficiently used
According to Bank Negara Malaysia (BNM) rules, applying for a joint home loan might seem easier for approval, but there are limits on the loan amounts for properties bought by one person or together:- For the first two-bedroom property, you can apply for a loan of up to 90%.
- For the third property, the loan amount is limited to 70%.
If you go for joint ownership with a 90% loan, you lose the chance to qualify for the same loan percentage individually. This rule also applies to your co-buyers. For example, if two people could each get a 90% loan for two properties before, now they can only get this for a total of two properties between them. If you plan to buy a third property, you can only apply for a maximum of a 70% loan from then on.
- The discount for first-time purchase is 50% off
The Malaysian government has introduced several measures to support first-time homebuyers, such as affordable housing projects, stamp duty exemptions until 2025, and mortgages that cover up to 110% of the property’s value.However, if both you and your partner are first-time homebuyers, only one of you can receive the first-time homebuyer discount. For example, if you and another first-time buyer both have the opportunity to buy an affordable home, you can each buy one property if you purchase separately, meaning you’ll own two homes.
But if you decide to combine your resources and buy a property together, you will only be able to buy one affordable home. This means that whether you buy together or separately, you will miss out on these benefits when buying additional properties in the future.
- Missed the One-Time RPGT Exemption Opportunity
The Malaysian Inland Revenue Board (LHDN) handles the Real Property Gains Tax (RPGT), which taxes the profit made from selling a property. Every Malaysian citizen is allowed one exemption when selling their home.If you co-own a property, both owners can use this exemption when selling. However, if you buy separately, each person can use their own exemption when selling.
The credit ratings of both parties closely connected
Getting a joint loan can improve your chances of loan approval, but all borrowers must have a good credit history. If your co-signer has a poor history of paying debts on time, it could affect your home loan approval, even if your credit is good.Before applying for a joint mortgage, make sure to check both parties’ credit scores, debt levels, repayment history, and other financial obligations. If you fully understand your loan agreement, you’ll be less worried about the other person not repaying the mortgage in the future.
- Dealing with Challenges After A Breakup
When you buy a house with someone, a big concern is what happens if your relationship changes. This could be due to a divorce, arguments, or ending the partnership, which can lead to difficult situations.For example, a young couple might break up after buying a house together. They then have to figure out what to do with the mortgage and the house. One person might want to sell the house, while the other doesn’t, leading to disagreements that can be tough to resolve. These issues make an already stressful situation even harder to handle.
- One of the individuals files for bankruptcy.
If a co-owner faces financial trouble, the Malaysian Poverty Alleviation Board may step in to manage their share of the property. In such cases, the agency may choose one of the following actions: - Auction and sell the co-owner’s share of the property.
- Freeze and take control of the co-owner’s share and other assets until their debts are cleared.
- Work with the other co-owners to either buy out the co-owner’s share or sell the property together.
- No matter the solution, it can create significant inconvenience and challenges for the other co-owners.
One of the co-owners can no longer work or passes away in an accident. If a co-owner can’t pay the loan because they lost their job or passed away, it can create problems. When taking a home loan, two types of insurance are usually required: Mortgage Reducing Term Assurance (MRTA) or Mortgage Level Term Assurance (MLTA). MRTA covers the bank if the borrower can’t pay due to death or disability. MLTA pays off the loan in case of death or disability. With these insurances, if your co-owner can’t pay because of an accident, you’ll only need to pay your half of the loan.
What Should I do if A Home Joint Loan Purchase Doesn't Work Out?
- Sell the house and split the money
If irreconcilable differences occur, the easiest solution might be for the joint owners to sell the property. Once the house is sold, the money from the sale will be split fairly according to each owner’s share. This will also end any legal responsibilities related to property rights and loans. This approach ensures fairness and helps resolve any issues caused by property rights disputes. By ending all legal responsibilities, both parties are freed from any obligations related to the property and loans, allowing them to move on without any burdens. - One person buys the house from the other
If you want to sell the property but the other party doesn’t agree, you can offer to sell your 50% share to them for a fair resolution.To do this, you will need to follow a process similar to selling a second-hand home. Both you and the other party will need to sign these agreements:
Sale and Purchase Agreement:
This document will state that you are selling half of your property rights to the other party, including the sale conditions and price.
Loan Agreement:
If the buyer needs a loan to pay for the property, this agreement ensures the transaction is legal and protects both parties. - Remove a joint owner’s name from the property If you’ve changed your mind and want the property to be solely in your name, you can remove the other person’s name from the property and the joint home loan.
However, the bank may hesitate to approve your loan since it originally considered both of your credit histories when granting the loan. But don’t worry, refinancing is the solution. Refinancing is like giving your loan a fresh start. You’ll get a new loan with updated terms, and it will pay off your old loan entirely.
When you apply for refinancing, the bank will review your credit again and approve it if they’re confident you can manage the mortgage on your own. The best part? The other person’s name will be removed from the loan automatically. It’s a good idea to consult a real estate lawyer before signing any contracts to protect your rights and understand the legal and financial responsibilities.
Conclusion
Buying a home is exciting, but it’s important not to overlook any potential issues. Remember, purchasing a home is a big decision. Take the time to consider your options carefully to avoid regrets later on. Before signing any contract, it’s a good idea to talk to a real estate lawyer. They can help protect your rights, ensure you understand your responsibilities, and guide you through the legal and financial aspects of the deal.
