For many, renting a property is a stop-gap solution on the pathway to the bigger dream of owning a home. And while renting provides a certain flexibility and potentially affordability the lure of home ownership appears as strong as ever it was.
In a recent story featured on news.com.au, an ambitious English woman has sold everything short of the shirt off her back (again, perhaps she sold that too) to scrape together a home deposit. Seemingly, she was paying more rent than what her predicted loan repayments would have been. However it raises the question: how far would you go to own your own home?
Not too far I hope as the option of home ownership is not as unrealistic as it once was thanks to improving affordability. These days renting can in fact be more costly than repaying a mortgage in some cases. At present, this stellar combination of low interest rates, housing affordability and a market on the bounce-back presents a very exciting opportunity for first home buyers. But what happens if you’re short on the deposit? Or perhaps the bank isn’t willing to give you a go just yet. Short of selling all of your worldly possessions, or giving up on the idea entirely, here are some alternative ways of entering the property market.
Sharing the load
Co-buying – also known as shared ownership, joint ownership or co-ownership – is when two or more people decide to spread the financial burden and buy a property together. More and more often, parents are buying with their children, siblings are buying together, as are friends, extended family members, even colleagues. By pooling your resources, you can afford somewhere bigger, better and sooner than you could alone. For those entering the investment market, the obvious advantages include the reduction in capital required and other associated costs involved in buying a property. Better locations can also become more accessible due to the reduced risk.
However, just like a shared tenancy, it’s important to remember that a mortgage mate, a co-buyer or a co-investor is in essence, a partner. As such, there are significant legal and financial obligations to consider and plenty of due diligence is called for. Before you jump in, be sure that everyone involved has the same intentions and goals. Short vs. long term ownership, owner-occupied vs. tenanted – you get the picture. And most importantly with co-ownership, it’s vital that all parties have a legally prepared document – such as s Deed of Trust – when entering into a co-buying arrangement.
Getting a ‘leg up’
Be honest, it wouldn’t be the first time we’ve had to ask the parents for a lending hand. Lucky for us, baby boomer parents are increasingly helping their kids into the property market. Creative ways they are giving their children a “leg up” include co-buying where the parent(s) provide the equity and the children take responsibility for paying the debt.
The other arrangement is by way of a guarantee. The traditional bank guarantee has been replaced by a product that allows a parent to guarantee an amount to supplement the borrower’s deposit. The size of the guarantee can be limited to a specific amount which protects the parent from losing their home should the child default on the loan.
Remembering that purchasing property is a long-term commitment with ongoing costs, it is also a fantastic way to secure a long-term future. So whether you decide on co-ownership, parental support or a good old fashioned ebay bonanza, it sure would be nice to have something to call your very own.