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It’s great when you meet that special someone whom you want to spend the rest of your life with.
But then you need to think about another important step involved – do you want to take out a joint home loan with them too?
The reality is that a joint home loan in Malaysia doesn’t need to be just between husband and wife. There’s a growing trend for parents and children, or even close friends, to apply for one together.
A shared loan agreement can have some real benefits for the parties involved, but they also come with some serious considerations about the financial and personal obligations.
So what are the benefits, the drawbacks, and the realities of taking out a home loan in Malaysia?
The Benefits Of A Joint Home Loan
Buying a house can be a big step, but it’s also a significant financial hurdle for many people.
If you want to buy the home you love, you’re going to need to find a bank that loves your finances enough to give you a suitable loan. That’s where a joint loan application can really help.
A joint home loan takes into account the combined income of the individuals applying for the loan.
Since banks have limits on the total amount they can lend you (which is generally based on your income level), combining two incomes can significantly increase the total amount you can ultimately borrow.
This increased purchasing power is one of the REAL benefits of applying for a joint home loan.
It not only means you now have the opportunity of being approved for a higher loan amount, it increases the chances of being approved for a smaller amount!
You see, your combined income is now so much higher than the bank's threshold.
As an added bonus, you’re also sharing the incidental costs of purchasing a house such as taxes, down payment, and fees with a partner.
- Pro 1 – Combined income increases home loan budget
- Pro 2 – Easier loan approval thanks to joint income
- Pro 3 – Shared entrance and purchase costs
The Downsides Of A Joint Home Loan
Like most things in life, the choice of a joint loan does come with some sacrifices.
A credit check (CCRIS or CTOS) is an important part of any home loan application, and when it comes to a joint loan – that’s double the credit records to check.
If your joint applicant has a poor CCRIS record, it will impact your chances of being approved for a joint loan even if yours is sparkling clean.
Another downside is the access to first-time buyer initiatives.
There are a number of such initiatives in Malaysia, offering financial incentives to homebuyers looking to get onto the property ladder for the first time.
If you access a joint loan for your property, there’s the chance that you might forego any opportunity you have to both benefit from first-time buyer initiatives.
That means two of you step onto the property ladder, but potentially only one of you gain access to a financial incentive.
A further financial incentive to consider is the Real Property Gains Tax (RPGT) exemption.
RPGT is a tax charged upon the profit gained from the sale of qualifying properties in Malaysia, currently those valued over RM200,000.
Malaysian citizens are offered a once-in-a-lifetime exemption from this tax.
If you’re part of a jointly owned house, one party in the agreement may essentially lose this benefit at the point of sale without gaining the financial reward.
Another point to recognise is how joint loan eligibility works for non-family members.
Financial institutions tend to be slightly more cautious about approving loans between friends, rather than husband and wife, or parent and child.
That’s based on the greater chance of friends deciding to travel their own directions in life, leaving a strained joint loan agreement between them.
- Con 1 – Credit records of all applicants assessed
- Con 2 – Lose access to potential first-time buyer initiatives
- Con 3 – Lose access to potential RPGT exemption
- Con 4 – Non-family loans assessed more critically
How Do I Apply For A Joint Home Loan?
First of all you have to find the housing partner of your dreams! Sometimes that’s your spouse, and sometimes it’s that BFF you think you can’t live without.
It’s important at this point to seriously discuss the financial and personal implications of a joint house loan.
You want to set out a clear, and legal, pathway for ownership in the event that things don’t work out. Does it seem negative to be planning this from the start?
Maybe a little bit. Is it smart? You bet your three-bed condominium in Mont Kiara it is.
Next up is deciding on the loan that you want to apply for. There are a number of banks and financial institutions throughout Malaysia offering joint home loans.
The likes of Maybank, CIMB, and Hong Leong Bank, all offer joint house loans.
If you’re not sure what’s right for you, employ the services of a qualified financial or real estate professional to help guide your decision.
Just like the normal process for a home loan, you’ll need a range of documentation in order to complete your loan. These may vary by bank, but are likely to include:
- Sale and Purchase Agreement (SPA) or Booking Form
- Passport or MyKad
- Salary slips
- Bank account statements (12 months)
- Income tax receipt
Initial approval times can vary, but could be as quick as 24-48 hours for a verbal agreement.
Once the bank has offered this agreement in principle for the home loan, it’s down to a background check for eligibility using the documents you’ve provided.
Assuming that all goes through without a hitch, you could soon be the proud recipient of a home loan.
What Happens If I Split Up With My Joint Home Loan Partner?
The question of a breakup is an important, albeit slightly depressing, reality of a joint house loan.
We’ve already discussed how it’s factored into the home loan eligibility decision when it comes to the type of partner you apply with, but it should also factor into your own financial planning.
A legal document laying out the rights and obligations of each party in the event of a split should form the foundation of your loan agreement.
That can be a difficult prospect when it comes to friendship, but it’s potentially even more challenging when it comes to family.
You have to consider situations such as in the event of a split, both parties want to maintain the property.
In those circumstances, it can be a challenge to address the problem without prior agreement.
The reality is that when individuals as part of a joint home loan decide to split up, there are three main routes out of the problem.
1) Sell The House And Split The Proceeds
This is perhaps the most straightforward solution, enabling both parties to regain a fair share of the financial proceeds.
2) Purchase Your Partner’s Share
One party decides to take on the full financial burden of the home loan by buying out the other party. This could cause financial challenges and will require approval of the bank.
3) Agree On Shared Ownership
One party stays within the property, but the other partner retains a financial obligation, and stake in the value.
Potentially the remaining party could purchases a part-share of their partner’s stake in the home to have majority ownership.
This requires a positive continued relationship that can be difficult to manage.
When it comes to home loans, there’s an awful lot to know! That’s true whether you’re applying on your own, or part of a joint loan agreement. But that’s just part of the struggle. Why not brush up on some important steps to buying a home with our guide to down payments, or guide on how to make the most of your CCRIS report.