Is it possible ?

This probably been asked before, but I couldn't find it.

Background -My adult daughter would like to purchase a home, but on her income alone, she would not get a loan for 100% of purchase cost.

Q Could I go tenants in common with her.
Could I purchase eg 66 %, and rent the other 2 rooms as an investment structure. She could purchase this from me later- all done legally with stamp and CGT etc ?
Do you have the cash, or are you needing to borrow as well?
Do you have any exisiting equity you can pull out? If so, you can draw down and lend to her at the same interest rate.


The Y-man
I prefer if she borrowed her share from lending agent.....avoiding as many probs as possible...
I have other children and I can't afford to extend borrowings to all of them.
I will also need to borrow.........So, is it possible what I purpose ?
If you adult daughter hasn't managed to save anything so far, how do you think she'll be able to handle mortgage payments?
she has been studying, just started working f/t , and hasn't got a partner.
The bottom market here is $ 300k +.
so my question is still the same...... is it possible ????
at risk of stating the obvious but - why buy now? Why not rent, save up, and wait for Mr Right and ye olde biological clock? (spoken as someone frantically trying to build a 4br house while pregnant :D ) A few years in a job makes a world of difference.
You can't get it answered here unless you tell us your income, daughter's income, how much you have as a deposit, value of other properties etc etc. Its a "how long is a piece of string" question.
It might be worth speaking to get to a mortgage broker or your bank directly. They'd very quickly be able to decide if it would work for you.
Avoid Joint Ownership Like The Plague!

Hello Jillian

Welcome to the Forum

As your daughter has just started work there will be a number of short term restrictions imposed on her which she can use to her advantage:

In order to borrow to 95% Loan to Value Ratio she will need to have held her permanent full time job for not less than six months. This gives her time to clear probation and to settle in.

In order to borrow to 95% LVR she will need to demonstrate that she has saved 5% of the purchase price, or has held + saved 5%, over six months. So she can start saving with her first pay and save the ‘mortgage payments’ steadily over the six months.

5% is called Genuine Savings and must be money saved from income, or a lump sum held for the qualifying period.

First Home Owners Grants are not included in Genuine Savings requirement but she still must show that she has the Funds to Complete the transaction.

Basic costs involved with the purchase are:

Purchase Price $300,000
ACT Stamp Duty for First Home Buyer $20
Transfer Registration Fee $189
Mortgage Registration Fee $96
Solicitor / Conveyancer $1,000
Search Fees & Charges $300
Lender’s Establishment Fees eg $750
Estimated Funds to Complete: $302,266

So all up, she will have needed to save $15,000 over the six months while she qualifies for the employment conditions
The FHOG runs through to 30th June, 2010 (may be extended but that’s a decision for the Commonwealth Government)

A loan to 95% would be $285,000.
Savings of $15,000 plus FHOG of $7,000 = total funds available $307,000 – enough left over for a celebratory pizza dinner!

The lender would allow capitalisation of the mortgage insurance (about $5,800) , so the total loan would be about, say, $290,800

Principal & Interest mortgage payments at eg 6.69% (just to allow for some interest rate increases over the next six months) would be about $1875 per month.

If she saves $1,875 per month x 6 months she will have $11,250, so she will have to save a bit more to qualify for the 5% requirement.

To qualify for a loan of about $290,000 she would need to have a gross income of about $50,000 and have no debts, HELP etc – if she has any debts then she would have to be earning more.

Does this help? There is no real way around the six month employment requirement for loans over 80%LVR so she can use the six months to qualify for time and for savings.

With a bit of diligence, she will be inviting you over to her place for Christmas Dinner this year!

But Jillian – avoid Joint Proprietorship like the plague

Plus, if you have previousy owned property your Daughter would not be eligibe for the FHOG grants and stamp duty concessions, so your joint purchase could end up costing a lot more than you think.

I am refinancing a customer who bought with her parents seven years ago – she is now paying nearly $20,000 in stamp duties to change the ownership of the property and her parents will be liable for tax on the capital gain even though she is not paying them anything and has never paid ‘rent’ on the property. To say her Mother is rather cross is an understatement!

It is far better for your Daughter to wait another few months and to buy independently than to go for what may look like an ‘easy’ solution now.

Kristine - You say to avoid co-ownership but don't really give reasons why other than one poorly structed arrangement. Those parties obviously lacked the knowledge one should attain before entering such an agreement. Can you elaborate as to why it's best to avoid co-ownership even if structured correctly?

I certainly agree there are pitfalls to be cautious of, however i disagree that it should be avoided like the plague when in some circumstances it suits perfectly.
thanks for you reply,

So if tenant in common she will lose FHOG and stamp concession.

Does ATO allow me to use a IP stucture with the other 2/3 rds ?
If she owed 1/3
Do they allow me to go tenant in common with her?
Does it effect the 'arms length' rule.?
I would not be renting to her. The other 2 rooms I will let out.

I understand the cost if I was to sell my 2/3.

She would also have to buy me out at what the current market value was.
No different then any other IP 100%.

If done properly and set up correctly and fully understood by both parties.
It could be a win win suitation.
She gets into the market .
I get another investment.
She can then buy from me, another 1/3 when she had paid down her mortgage,etc

So would this structure be allowed by the ATO.

I understand each party is fully responsible for the full amount. No probs for me but would be for her.She would have to have mortgage protection insurance

Thanks for sharing

buy in Quenbeyan

You hold 5 %, makes you a minority owner. Still get the FHOG and most lenders will allow such a low share holding on a loan arrangement.

thanks Rolf, but holding 5 % doesn't make the figures stack up..Too big of a commitment for her.
But her holding 1/3 paying off ASAP... paying less interest ...paying down principal asap ..before buying another 1/3 off me etc. While I hold 2/3 with IO as an IP long as necessary.The cost of transfer selling... her buying another 1/3 would be so much less than the cost of interest payments for her only..
I will get a spread sheet done later.
All I need to know is will the ATO allow it?
Is it possible to do ?
I have found another place to ask...
thanks any way everyone
James the canberra market is crazy here.
see best real estate site.

Plenty of cheaper Dumps in queanbeyan...lots of renters there....too far away

Its a Long time since I have seen any thing under $300k here....prehaps a 1 bed flat / 'rats nest', that any 'decent' person would not want to live......

a 3 bed would mean not having to relocate later. Also if land big enough could extend or dual occupancy.
As well as having rooms for rent to help with payments.