Can You Have Two People On The Mortgage And One On The Title?
Yes, you can. It’s quite common for couples to come into a relationship with one of them already owning a property.
Other couples choose to buy a property in just one name for asset protection reasons.
The problem is some banks won’t accept two borrowers, one owner and may knock back your home loan.
Example of two owners, one borrower
- A couple’s home can be in just one name.
- A couple’s investment property can sometimes be in just one name.
- Your business can borrow against a home owned by your partner.
- You can’t borrow against a property owned by someone unrelated, except with a guarantor loan.
Do you need help finding a lender that will accept your loan structure?
Call us on 1300 889 743 or complete our free online assessment form and one of our specialist mortgage brokers will go through your options.
The Asset Protection Benefits Are Great
The main reason why couples choose to have these ownership structures is for asset protection.
Let’s imagine the husband is a self-employed barrister who is at risk of being sued.
A property developer could find themselves in the same situation should a project fail.
By putting their home in their wife’s home, they reduce the risk that they will lose their home in the event of legal proceedings.
This can work just as well with an investment property or other assets.
Can one spouse’s income be used to prove that the other has the borrowing power required to afford the loan?
Yes, but banks get concerned when one spouse has no income of their own.
We usually discuss these scenarios with several lenders to find the best possible solution.
Seek legal advice before you decide on an asset protection strategy.
It’s complex and some methods, such as putting property in a trust, aren’t always as effective as they look!
What Does The Legal Structure Look Like?
The typical legal structures are:
Owning a home
Borrowers: Husband and wife
Mortgagor (owner): Husband OR wife
Owning an investment property
Borrowers: Husband and wife
Mortgagor (owner): Husband OR wife
Financing a business
Borrowers: ABC Pty Ltd
Guarantor: Spouse (whichever one is not an owner)
Mortgagor (property owner): Either spouse
Although people use the terms ‘home loan’ and ‘mortgage’ interchangeably, they aren’t actually the same thing.
The home loan is the actual loan itself while the mortgage is the legal instrument used to provide a property as security.
Does Every Bank Accept Two People On A Home Loan?
As a general rule, banks want the applicants borrowing the money and the people offering the security to be the same people.
They’re often willing to accept a couple with a home as there’s a clear benefit to both of them in having that home.
There are some exceptions to this though!
Loan Structures That Scare The Banks!
Buying An Investment Property
What if you have an investment property in one name, with both the husband and wife on the investment loan?
The banks begin to ask some difficult questions:
- Will both of you benefit from owning the property?
- In the event of a dispute, will both of you pay the mortgage?
- Is this an asset protection strategy, will one borrower invariably experience financial hardship?
Financing A Business
What if you have a home as security for a business loan?
Often the business is just in the name of one person so the bank will want to know:
- Will both people benefit from the business borrowing this money?
- If the business experiences hardship, is their family home at risk?
- Is the loan regulated or unregulated under the NCCP act?
Most business loans are unregulated which means the banks have less rules requiring them to protect each property owner.
They’ll tend to take a common sense approach and only approve a loan like this if it’s a low risk.
You can actually get business loans at home loan rates through some banks!
Don’t get ripped off: call us on 1300 889 743!
A Friend Borrowing On Your Property
What if your friend or family member wants to borrow against your property?
This is known as third-party security and it terrifies the banks for several reasons:
- There is no benefit to the person offering security for the loan.
- The bank is not acting in its interests if it approves the loan.
- The person using the money doesn’t offer any security.
- These loans have a history of being trouble.
Luckily, there are solutions:
- A guarantor loan may help if you are helping your friend buy a home.
- In limited circumstances a son or daughter may borrow using their parent’s equity.
The banks are unlikely to help most people in these situations.
It’s best to call us to discuss your individual circumstances.
Low-Doc And SMSFs Are Not Available
Specialist loan types aren’t designed to be used with unusual ownership and borrower structures.
This is for a variety of reasons.
Low-doc loans need to have the same people as borrowers and title holders for the property. Income is difficult to prove by traditional means and banks want to make sure all people have skin in the game.
SMSF loans are complex. An SMSF can have multiple members, bare trusts and guarantors and. On top of that, an SMSF is non-recourse. Adding another layer of complexity and risk for the banks just isn’t in their interest.
It’s All About Who’s Getting The Benefit
What the banks are looking for is that all parties to the loan get a benefit.
Legally, all borrowers are required to benefit from the loan.
However, it isn’t legally required that all people offering security (mortgagors) are getting a benefit from the loan.
Funnily enough, they can also be a borrower if they are getting a benefit from the loan. If they aren’t, then they are known as a guarantor.
So if it isn’t required for the property owner to receive a benefit, why do the banks care?
Well, if the person using the money and making the repayments isn’t the person who has their property at risk then all sorts of trouble can happen.
Imagine you helped a friend or extended family member borrow money against your property and then you had a falling out.
They may decide to stop making repayments just to spite you!
As you can see, there’s the potential for a lot of trouble here.
Call us on 1300 889 743 or fill in our free online assessment form and our specialist mortgage brokers will help you to get approved.