DIEKETSENG Maleke wants to buy a house so that "instead of renting and paying somebody else's bond, I'll be paying my own bond".
However, she has decided to buy a house with her friend as this is more affordable and will allow her to maintain her lifestyle. "I wouldn't qualify outright for a home loan.
"Even if I qualified, I would be broke by month-end after my monthly payments and I don't want that.
"I want to be able to maintain my current lifestyle and still have entertainment," says Maleke, who is joining a growing trend of would-be homeowners entering into partnerships to buy a home after finding that they have been priced out the property market.
A recent salary survey by Career24 found that the average salary in South Africa is R16 586 per month. According to the Absa House Price Index, the average price for a small house (80m² – 140m²) is R684 000.
Based on FNB's online bond calculator, the repayments would be R8 480 per month. To qualify for that level of mortgage bond, you would need to earn R28 268 before tax – 75% more than the average income.
In fact, on a salary of R16 586 a person would only qualify for a mortgage of R387 141. Therefore for most South Africans, home ownership may only be possible through combining incomes.
While this may be a solution, it is a long-term commitment that can have serious financial implications should the partnership fail; you need to think this through and weigh the consequences carefully.
FNB CEO housing finance Marius Marais says the bank has handled several of these types of transactions. Although they remain relatively rare, FNB has never had an issue and all the deals have been successful so far.
"You need to be aware that you are both liable for the loan and should one party fail to make a payment and the bank decides to repossess the property, you will both suffer the consequences.
"You also need to understand that when you enter such an agreement, you are responsible for the total amount of the loan as you are jointly responsible for the bond."
This means that if you decide to sell the property, you will benefit equally from the profit made, even if the other party did not commit to making payments.
If there is a default in payments, you are both liable for the unpaid amount; if your partner cannot make them, the bank can claim the full payment from you.
Maleke says to ensure the agreement is solid, she and her partner decided to go to a lawyer who will draw up a contract.
"I trust my friend because I have known her for a long time and she's more like a sister to me; I have known her for 10 years. Trust is important when you go into an arrangement like this.
"I trust her because she knows about my personal problems as well and I know she won't run away,” says Maleke. Although her friend is on contract while she is permanently employed, she is willing to take that risk because of their solid friendship.
She adds that she would be the principal bond holder in the agreement.
Salvatore Puglia from Puglia Attorneys says before entering into any agreement, you should ensure that you have a strong relationship with the other person. Both of you should be able to repay the loan.
He advises signing a contract which states clearly how the bond is going to be paid, and what will happen in the event of one party dying or a fall-out of the relationship before the bond is paid off.
This contract, however, gives no guarantee that the other party will honour the agreement. A will is also important for this type of partnership. It must clearly be stated in the will what will happen to the property or dependents in case of death.
"If the other party fails to honour his/her part of the agreement, parties can negotiate to sell the house in an open market in order to pay back the bank.
"However, if the bank makes a loss in the selling of the property, the bank will send summons to both parties," says Puglia. This is irrespective of whether one party has honoured the agreement while the other has not.
According to Puglia, the contract will not necessarily protect you in case of litigation as the bank will not entertain personal disagreements that you may have, but will look at the bond that you signed jointly.
Marais says one of bank's requirements is that at least one party should live on the property. He says it is also important that individuals take a joint life cover that will cover their debt in the event of the death of one party.
The life cover should be equivalent to the loan amount.
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