A home is a once-in-a-lifetime investment, and purchasing a home may be the single largest investment you would make during your lifetime. Thus, it makes perfect sense if you’re thinking of splitting the high cost of buying a home with someone by getting a joint home loan.
No doubt, taking a joint home loan can tremendously improve your chance of getting your own home. Here, we’ll dissect the topic of joint home loans and take a look at its definition, advantages, disadvantages, and more!
But First, What is a Joint Home Loan?
As opposed to a conventional home loan, a joint home loan is applied by two or more individuals and is granted in the name of all of its applicants. After a successful application, the applicants can leverage the loan to purchase a home in their names, making them joint owners or co-owners of the property.
In Malaysia, joint ownership takes the form of a tenancy-in-common, in which each owner’s shares are separated from the outset, as stipulated in section 343(1)(a) of the National Land Code (Kanun Tanah Negara).
Who Are Eligible to Apply for a Joint Home Loan?
Any party of two individuals or more can apply for a joint home loan. A joint home loan is especially advantageous for the following groups of people:
- Married couple
- Unmarried couples
- Friends or partners
How to Apply for a Joint Home Loan?
Of course, the first step would be finding your preferred housing partner or partners. After all, you can’t apply for a joint home loan as an individual. It’s important to find someone who you can seriously discuss your financial situation with, whether they’re your spouse, best friend, or family.
Next, you must establish a clear, legal ownership path as a joint home loan is always vulnerable to unprecedented situations such as breakup or disagreement. Entering a binding agreement that lays out the rights and obligations of each party in the event of a dispute with all of the applicants is one of the best moves you can make. Doing so provides you with a safety net just in case things don’t work out for you and your partner(s).
Since there are a variety of banks and financial institutions that offers joint home loans, you must then determine which loan you want to apply. If you’re not sure what’s best for you, engage a skilled financial or real estate specialist to consider all factors and help you make the right decision.
What are the Documents Needed to Apply for a Joint Home Loan?
Similar to the typical process for a home loan, you must prepare a range of documentation to apply for a joint home loan.
Having said that, the main distinction is that every person participating in the loan application must provide the needed documents. This can be a cumbersome process if one or more individuals are unable to provide the necessary paperwork.
In Malaysia, foreign nationals, with the exception of Israel citizens, can apply for a joint home loan using the two methods below:
- Regional Preferred or Private Banking, in which a Malaysian bank maintains a presence; or
- Local Preferred Bank or Private Banking, which is frequently associated with a Malaysian bank.
The required documentation can be classified into three categories, namely, identification documents, proof of purchase, and income documents.
- Malaysian applicants: Applicants must provide a copy of their identification card (NRIC)
- Foreign applicants: Foreign applicants must provide a copy of their official passport with a minimum validity period of 6 months or are permanent residents holder of Malaysia.
Proof of purchase
- Applicants must deliver their Sale and Purchase Agreement (SPA) or developer’s booking form.
- Salary applicant: Latest 3 months’ salary slip; and Latest Employee’s Provident Fund (EPF) statement, or 3 months’ bank statement to serve as proof of salary being credited.
- Commission applicants: Latest 6 months’ commission statement; and Latest 6 months’ bank statement as proof of salary being credited.
- Self- employed applicants
- Business registration document: Latest 6 months’ commission statement; and Latest income tax payment receipt (Form B/BE)
On top of that, all applicants must declare any deposit statement they have. This includes fixed deposits, investments, bonds, and others.
The Benefits of a Joint Home Loan
1. Increased budget
One could say that one of the biggest concerns for any homeowner is budget constraints. Having a higher budget is certainly an advantage in your journey of seeking the house of your dream.
For example, you may have a specific property in mind but may not have a sufficient budget to purchase said property. Another unfortunate situation is that you have enough budget but are unable to locate a property that provides exceptional value for your money.
A joint home loan enables you to share your resources with your partner(s) to buy the perfect home. In addition, combining two or more incomes can increase your purchasing power and allow you to smoothly overcome money problems during your purchasing process.
2. Streamline loan approval
It’s also easier and faster for you to get a joint home loan approval compared to a conventional home loan. In contrast to a regular home loan, a joint home loan means that there is more than one source of income.
More streams of income serve as a positive indicator for banks and other financial institutions since they can recover the loan in more than one way. What’s more, buyers don’t have to shoulder the financial duties and liabilities of owning a house alone. Instead, the weight is shared among all parties involved. This is especially advantageous for young couples who are looking forward to purchasing their first property.
3. Shared entry cost
A joint home loan enables co-owners to split the down payment, which is typically 10% of the property’s total value. Coming up with a down payment is an undeniable hurdle, and opting for a joint home loan can significantly reduce this financial burden.
Not only that, other entrance costs, such as booking fees, legal fees, and administrative fees, if applicable, are also reduced with a joint home loan. Partners are able to split property taxes, maintenance costs, and other payments such as stamp duty, door tax, land tax, and assessment tax.
The Drawbacks of a Joint Home Loan
1. All partners must have a good CTOS/CCRIS score
The Central Credit Reference Information System (CCRIS), developed by Bank Negara Malaysia Credit Bureau (BNMCB), provides uniform credit reports on potential borrowers. It allows lenders to accurately assess a borrower’s creditworthiness by referring to their recorded economic history.
Meanwhile, CTOS is Malaysia’s major credit reporting agency (CRA), which manages credit extension. Lenders usually refer to the borrower’s CCRIS and CTOS score to determine their loan eligibility.
For a joint home loan, in particular, lenders will scrutinise the CCRIS and CTOS scores of all partners. If one of them is perceived as uncreditworthy, the loan application is most likely to be rejected. As such, all partners must take considerable care of their credit scores to ensure the approval of a joint home loan.
2. Forego RPGT exemption
The real property gain tax (RPGT) is a tax on the profit gained by property owners when they sell their homes. The RPGT exemption is a one-time exclusion from any taxable profit from the sale of a residential property.
The rate of exemption is RM10,000 or 10% of the taxable amount, whichever is higher. However, the RPGT exemption is 100% if the property is transferred within a family, such as between husband and wife or parent and child.
Since it is impossible to ascertain which partner gains the biggest portion of the taxable profit in a joint home loan, all partners would have to forfeit the RPGT exemption. It would also be unfair if all partners were taxed for one individual’s gains.
3. Forego housing initiatives
Nowadays, there are numerous house initiatives in Malaysia to help first-time home-buyers. Having said that, these initiatives, such as the rent-to-own schemes by PR1MA and Rumah Selangorku’s Rumah Sewa, do not support a joint home loan.
Furthermore, partners must also forego developer offers such as free legal fees, stamp duty exemptions, and possibly rebates on certain properties. Partners in a joint home loan will be responsible for these charges and will be required to provide additional funds.
Should You Apply for a Joint Home Loan?
All in all, It is up to you to decide whether or not you want to opt for a joint home loan and if it’s the best option for you. Bear in mind that all individuals participating must be willing to commit to the bit and are ready to face the risks that come with a joint home loan as well as unprecedented situations.