The contents of this article were contributed by Joyce Yeoh.
Joyce is the Head of Team in IQI Realty’s Elite Team, with 5 years of experience in real estate. She has received numerous awards for her excellent performance, such as the StarProperty All Stars Negotiator Award 2022. She is also a 3-time recipient of the IQI Rolex Achiever Award
Version: CN
With housing costs on the rise, many Malaysians are opting for joint property purchases with family or friends, often facilitated by a joint home loan, to tackle the market challenges.
This strategy, prompted by soaring prices, eases financial burdens by sharing economic responsibilities and simplifying loan access through joint home loans.
However, is joint property ownership through a joint home loan the wisest choice?
Potential future complications, such as prolonged disagreements and obstacles, highlight the importance of careful consideration before committing.
It’s essential to weigh both the benefits and drawbacks before deciding on joint property ownership with a joint home loan.
Table of contents
Joint home loans can help share the financial burden of the down payment, which is traditionally set at around 10% of the property’s total value.
Additionally, a guarantor is often required for housing loans, even in joint applications, adding a layer of complexity to the process.
Introduction
A joint home loan is a type of home loan that allows two or more individuals to apply for a loan together, sharing the financial burden and responsibilities of homeownership.
This type of loan is beneficial for individuals who want to purchase a property together, such as couples, friends, or family members. In this article, we will discuss the benefits and drawbacks of a joint home loan, who can apply for one, and the documents needed to apply.
What is a Joint Home Loan?
A joint home loan is a type of home loan offered by banks and financial institutions to two or more individuals who want to purchase a property together. The loan is granted in the name of all the applicants who become co-owners or joint property owners.
In Malaysia, joint ownership runs in the form of a tenancy-in-common, where each owner’s shares are divided and treated as separate from the outset, as provided by S343(1)(a) of the National Land Code (Kanun Tanah Negara).
Who Can Apply for a Joint Home Loan?
Two or more individuals can apply for a joint home loan. Joint loans are commonly used by couples, business partners, or family members who want to combine their financial resources to secure a loan with better terms or a higher loan amount.
All parties involved in a joint loan are equally responsible for repayment, and the loan is usually based on the combined creditworthiness and income of the applicants. However, it’s important to note that any missed payments or defaults on the loan will affect all borrowers’ credit scores.
The applicants can be salaried or self-employed, and they can be Malaysian citizens or non-resident Indians (NRIs).
Documents Needed to Apply for a Joint Home Loan
The documents needed to apply for a joint home loan are similar to those required for a conventional home loan. The applicants will need to submit the following documents:
- Identification documents (e.g. passport, ID card)
- Proof of income (e.g. salary slips, bank statements)
- Proof of employment (e.g. employment letter, business registration)
- Proof of property ownership (e.g. sale and purchase agreement)
- Credit reports (e.g. CCRIS, CTOS)
Eligibility Criteria for a Joint Home Loan
To be eligible for a joint home loan, the applicants must meet the following criteria:
- Age: The applicants must be at least 21 years old and not more than 60 years old at the time of loan maturity.
- Income: The applicants must have a minimum income of RM5,000 per month.
- Credit score: The applicants must have a good credit score, with no outstanding debts or defaults.
- Property value: The property value must be at least RM200,000.
- Loan tenure: The loan tenure must be at least 5 years and not more than 30 years.
By meeting these eligibility criteria, applicants can increase their chances of getting approved for a joint home loan and enjoying the benefits of shared homeownership.
Advantages of buying a house in joint names
1. With more people, there is more power, and there are more choices for buying a house
A joint home loan allows multiple individuals to pool resources, increasing purchasing power and expanding housing options.
This is particularly helpful for those who might not qualify for a mortgage alone, as combined incomes and credit scores can lead to larger loan amounts and access to a wider range of properties.
2. High approval rate for joint home loan applications
Joint home loans often have higher approval rates due to multiple income sources and credit scores, which reduce lender risk. The shared financial responsibility and potentially lower debt-to-income ratio create a stronger financial profile, increasing the likelihood of loan approval and helping applicants secure financing for their home.
3. Lower loan interest rates for joint home loans
Joint home loans often secure lower interest rates than individual loans because lenders perceive them as less risky. These lower rates translate to significant savings over the loan term, making homeownership more affordable and freeing up funds for other expenses like renovations or savings.
4. Tax Benefits under the Income Tax Act
Joint home loans offer tax advantages, such as deductions for interest paid and principal repayments under relevant sections of the Income Tax Act.
These deductions can significantly reduce taxable income and overall tax liability, easing the financial burden of homeownership and improving financial health.
Disadvantages of buying a house in joint names
1. 90% of the mortgage loan is wasted
While joint home loans offer convenience, Bank Negara Malaysia (BNM) regulations impose limitations. The loan limit is 90% for the first two properties, dropping to 70% for the third, and this limit applies collectively to all applicants.
This means choosing a joint 90% loan prevents each applicant from securing two individual 90% loans. Furthermore, joint loans carry risk, as one applicant’s inability to repay may burden the others. Therefore, all applicants should understand their obligations, plan for contingencies, and prepare for potential financial strain.
2. Wasted the once-in-a-lifetime RPGT exemption
The Malaysian Inland Revenue Board manages the Real Property Gains Tax (RPGT), which taxes profits from selling property. Each Malaysian citizen gets one exemption when selling their home.
If you jointly own a home, both owners can use this exemption when selling. But if you buy separately, each person can benefit from their own exemption when selling.
3. After the breakup, it’s really troublesome
Buying a house jointly can lead to challenges if the relationship changes, such as a breakup, disputes, or ending a partnership.
For example, a young couple splitting up after purchasing a home may face tough decisions about the mortgage and property. Disagreements, like one wanting to sell while the other doesn’t, can be difficult to resolve and add to the stress of an already complex situation.
a. One of the parties declares bankruptcy
In Malaysia, if a joint homeowner faces financial hardship, the Poverty Alleviation Board intervenes, potentially impacting shared property ownership. Options include auctioning the individual’s share, freezing and seizing their assets until debts are cleared, or negotiating with other owners for a joint purchase or sale of the entire property.
Regardless of the chosen method, these interventions inevitably cause significant disruption and inconvenience for the other joint homeowners.
b. One of the parties loses the ability to work or dies in an accident
If one co-owner can’t pay the loan due to job loss or death, it can cause issues.
When getting a home loan, people usually need two types of insurance: Reducing Mortgage Insurance (MRTA) or Mortgage Level Term Assurance (MLTA).
MRTA protects the bank if the borrower can’t pay due to disability or death. MLTA repays the mortgage in case of death or disability.
With these insurances, if your co-owner can’t pay due to an accident, you’re only responsible for half the loan repayment.
Joyce Yeoh, a real estate agent of IQI, shared this issue in her video:
What should I do if a joint purchase of a house falls through?
1. Sell the house and divide the proceeds equally
If irreconcilable differences do arise, perhaps the most straightforward solution is for the joint owners to sell the property.
After selling the house, the proceeds will be divided fairly based on each co-owner’s share of property rights. This will also dissolve all legal obligations associated with property rights and loans.
This approach ensures fairness and justice and resolves unpleasant situations that may arise due to property rights disputes.
By ending all legal responsibilities, each party will be released from obligations related to real estate and loans, allowing them to start anew without burdens.
2. One party buys the house from the other party
If you wish to sell the property, but the other joint party does not agree, you can suggest selling your 50% share to the other party to achieve a mutually satisfactory result.
To achieve this, you need to follow a process similar to that used to buy or sell a second-hand home. You and the other party need to sign these agreements:
- Sales and Purchase Agreement: This contract will clearly stipulate that you are willing to sell half of your property rights to the other party, as well as the relevant sales conditions and price.
- Loan Agreement: If the buyer needs to take out a loan to pay for the home, these documents will ensure the legality and transparency of the transaction and provide legal protection to both parties.
In the thrill of purchasing a home, individuals often disregard potential drawbacks.
Nevertheless, it’s crucial to recognize that buying a home is a significant life event. Take the time to weigh your options carefully to prevent future regrets.
Before signing a contract, it is recommended that you consult with a professional real estate attorney to ensure that your rights and interests are fully protected and that you understand the legal and financial responsibilities that may be involved in the transaction.
Just like the real estate technology company IQI, its professional real estate team of more than 30,000 people, after professional training, can provide buyers with professional house buying advice and help many people realize their dreams of buying a house!
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