Q: MY SISTER AND I WOULD LIKE TO PURCHASE A PROPERTY TOGETHER. MY SISTER HAS ENOUGH MONEY FOR HER SHARE IN CASH BUT I NEED TO RAISE A LOAN FOR THE BALANCE. CAN I APPLY FOR A BOND OVER HALF THE PURCHASE PRICE IN MY NAME ALONE?
A: We frequently come across this scenario and the purchasers mistakenly assume that the Offer to Purchase document can be in both their names, but only the person who requires mortgage finance needs to apply for the home loan.
Unfortunately, this is NOT the case!
BOTH purchasers must apply for the home loan and they must qualify for the bond based on their joint affordability. This means that both incomes and joint expenditure will be used by the bank when considering the home loan application.
This inclusion of both purchasers can be problematic if the purchaser putting in the cash is unable to prove adequate income, or has an adverse Credit history. With their involvement the home loan would be declined by the bank whereas had the other purchaser applied alone it might have been approved!
Additionally, the home loan is granted “jointly and severally”. This means the bank will hold the applicants jointly responsible for the full amount, but also individually. And this means that if the bond goes into default the bank will pursue both mortgagors, but if one cannot pay, the other will be held responsible for the full debt.
This may appear to be quite unfair to the person who has already paid their share of the purchase price in cash, but the bank will not grant the home loan in the name of the one purchaser only. The Title Deed for the property will be registered at the Deeds Office in the names of both purchasers and the bond must therefore also be registered in both names.
A potential work-around and safeguard is that the purchasers could have a document (“Contract”) prepared by an attorney in which the interests of the person paying their share in cash is mentioned. Please note, however, that while this would give some protection within the relationship, it will have no legal standing as far as the bank is concerned.