Buying a house is a significant investment, and many individuals in Malaysia are facing challenges due to stagnant wage growth and rising property prices. To overcome these obstacles, joint loans have become a popular solution, allowing people to purchase property jointly with family members, partners, or relatives. However, it’s important to consider the advantages and disadvantages of taking joint loans for buying a house. In this article, we will explore the benefits and drawbacks to help potential buyers make informed decisions.
Advantages of Joint Loans for Buying a House:
- Shared Cost and Expenses: When multiple parties contribute to the down payment, they can afford a higher-priced house. Joint buyers can leverage the combined income of all co-signers to overcome high debt-servicing ratios (DSRs), potentially resolving eligibility issues. Additionally, joint buyers can withdraw savings from their respective Employees Provident Fund (EPF) accounts to pay the 10% down payment, further reducing financial pressure.
- Increased Loan Application Limit: Banks consider the total income of all joint borrowers when evaluating a housing loan application. This can significantly increase the loan amount, enabling joint buyers to purchase a more expensive home than they could afford individually.
- Addressing Bad Credit Scores: By jointly applying for a loan, individuals with a bad credit score can partner with someone who has a good credit history. The bank takes into account the credit scores of all joint borrowers, which can improve the chances of loan approval for those with unfavorable credit records.
Disadvantages of Joint Loans for Buying a House:
- Stricter Approval for Non-Family Members: Banks tend to be more cautious when approving joint loans between non-family members. Obtaining a joint loan with friends or business partners may be more challenging compared to joint loans involving family members.
- Exhausting First-Time Homebuyer Benefits: Malaysian government policies offer various incentives to first-time homebuyers, including affordable housing options, mortgage assistance up to 110%, and stamp duty exemptions. If both parties in a joint loan are first-time buyers, they will utilize their benefits in the joint purchase, and these privileges won’t be available for future home purchases.
- Potential Challenges and Disputes: a. Disagreements: Joint buyers may face conflicts and disagreements over house ownership and loan repayment, particularly in cases of relationship breakdowns or falling out between joint buyers who are friends or business partners. These disagreements can lead to issues such as non-payment of mortgage installments or conflicts regarding the sale of the property.
b. Death: In the event of the death of one joint buyer, their share of the property rights will be inherited by their family members. This can complicate the decision-making process regarding the property, including potential sales or changes in ownership.
c. Bankruptcy: If one joint buyer declares bankruptcy, the Malaysian Department of Insolvency may take over their share of the property rights. This can lead to distressing situations for the other joint buyers, such as the auctioning or freezing of the property.
To mitigate potential issues, it is advisable for those considering joint loans to prepare in advance. Hiring a lawyer to draft a joint house purchase agreement can be beneficial. This agreement should specify each party’s share in the property and outline solutions for future risks such as divorce, death, or relationship breakdowns.
Joint loans for buying a house offer several advantages, including shared costs, increased loan limits, and the ability to overcome bad credit scores. However, there are also disadvantages, such as stricter approval for non-family members and the potential for disputes and complications. It is crucial for potential joint buyers to carefully assess their circumstances, consult legal professionals, and consider the long-term implications before proceeding with a joint loan.