lender issues - buying in partnership

[Shann]

Hi,

I'm needing urgent help as finance clause clock is ticking!

We have entered into an arrangement to purchase a property in partnership with my mother (hubby & I 25% each, mum 50%).

She has equity in her PPOR. We have equity in a package of PPOR & 2 renters.

We all need to borrow full amt + costs (we have enough equity to be below 80%).

Broker is suggesting that we take out a joint mortgage with our house + mums as the security.

We don't like the sound of this. Had wanted to keep it all professional and more arms length than this for many reasons. Sounds like a nightmare (eg what if one of us wants to lower our interest costs by making a lump sum deposit etc).

Is this how things are normally done? I would have thought we could both just borrow separately to fund project. One problem appears to be that would require refinancing our whole package (which is cross-collateralised).

Taking all suggestions...

 

[Perth Investor]

Best option would be if mum takes out a loan against her house for her portion of the 20% (plus fees) and you and hubby do the same.

Not sure if you're all in a position to afford loans on your own though, so obviously a lot of guesswork going on.

Clearly you all have equity in your own properties: The only way to avoid those properties being secured to this loan, is to borrow money against them directly and individually, otherwise your mum will have more risk in the venture than yourselves. Which from the sounds of it you want to avoid if possible.

You will need a decent broker to do all the above with the clock ticking though

Some banks will let you do individual loans against the property, but it is definitely more common to have the loans in joint names. An easy way to get around this is have the loans in joint names (if that's what the bank insists on) but have two separate loans, one that you pay and one that your mum pays. This is very simple for the bank to do and wouldn't cause a problem at all. However you would still be liable for your Mum's loan in this instance, so if she didn't pay you would have to. But at least you can each have a loan and each pay it off as you like.

 

[Qlds007]

Hi Shann

As PI has mentioned the cleanest way is for each of you to contribute 10% each plus half the costs and then take a loan of 80% on the standalone security.

Whilst you mother maybe able to take out an equity loan against her property i think your issue may well be the cross collateralised loans.

Might be worth starting to unravel them so that next time a deal arises you are ready to pounce on it without such issues

I am assuming serviceability is ok sounds like the issue is the way the loans are structured.

 

[Rolf Latham]

Broker is suggesting you tie yourself up further.

Something I wouldnt do unless I was lazy , or there was some other reason.

The more convoluted a structure u put together for a client, the LESS you will be able to place for them in the future. Thats potentially bad for the borrower(s) and surely bad for the broker.

Good to see you have the foresight !

ta
rolf

 

[Bradsdad]

As above.

Keep your deposits seperate otherwise it'll be a nightmare next time if going it alone (for either of you).

 

[Shann]

Thanks so much for your thoughts.

I approached my broker with your ideas and it seems I have slandered a good man's name

He was thinking ahead to the fact that we needed funds to subdivide and that it would save $ in the future to borrow for that now. The subdivision funds not being covered by the security requires the messiness.

He is looking for a solution for us. It seems we might need to finish our entire project (buy, sub, build) and then extricate ourselves from the mess (yep we know that will cost $) or otherwise pull out of the contract. Or just accept the mess for now.

It is hard to weigh up the cost of having a tangled ball of yarn for mortgages and collateralisation vs having to sit it out and wait to save for a bigger cash deposit. I spoke with our accountant today and she feels that we can cope with the apportionment (is that word?) of the mortgages etc but is obviously not entirely happy about the extra work.

We have the weekend to think about it...

Thanks again (can you tell I'm a property newb )