Buying a house together: Things you need to know before problems arise.
- Potential Problems with Joint Loans
Joint loans can present several problems, categorized by the type of person involved:
1) Joint loans for couples who are dating or unmarried
The most common problem is when they break up sooner than expected. With both names on the loan, who will continue making payments? If one party can afford the payments alone and believes they can secure a loan independently, it's not a problem; the co-borrower's name can be removed.
However, each bank has different procedures. Some banks will process it like a new loan application, refinancing, or resubmitting documents (some banks will require the party who will continue making payments to resubmit documents). If the borrower has sufficient financial capacity, it's not a problem. But if they can't afford the payments alone, it becomes a major issue and may require selling the house or condo.
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Generally, there are three ways to resolve joint loan problems:
Method 1: Removing the Co-borrower's Name
The main problem with this method is reaching an agreement on who will own the property, and the other party must agree to transfer ownership. If one party refuses, the co-borrower's name cannot be removed. However, if an agreement is reached, an appointment can be made at the Land Department to request the transfer of ownership. The party taking over the loan will then be solely responsible for making the mortgage payments. However, if the borrower has a poor payment history or insufficient income, the bank may not approve the removal of the co-borrower's name because it increases the bank's risk.
Method 2: Refinancing from a joint loan to a single borrower
Another option if the old bank doesn't approve the removal of the co-borrower's name is to refinance with a new bank to obtain a single-borrower loan. Generally, banks will approve a single-borrower loan, but they will need to assess the borrower's ability to repay the debt. The conditions are as follows:
– The bank will check various information such as employment history, income, source of income, existing debt, and job stability, especially the borrower's history of timely debt payments to the old bank.
– The bank will consider whether the borrower has sufficient income to make monthly mortgage payments. If the income assessment shows the borrower has the ability to repay, the bank will approve the loan. Conversely, the bank will not approve the single-borrower loan, even if the borrower has a history of timely payments to the old bank.
– The borrower must not have a history of bad debt in the credit bureau, often referred to as a "bad credit history." Having a bad credit rating, such as having multiple credit cards with a combined credit limit significantly exceeding your income, will be assessed by banks as excessive debt, increasing the chance of a negative credit rating. In such cases, banks will not approve refinancing.
– Once the bank approves refinancing, on the day of registering the new mortgage, the co-borrower must be contacted to sign the transfer of ownership. Common problems include being unable to contact the other party, or the co-borrower offering a compromise before signing.
Method 3: Selling the House
If both parties no longer want the house, selling it is a simple way to close the joint loan and resolve the issue without either party having to bear the burden of continuing mortgage payments. There are steps to prepare for selling a house that you should know, including:
– Preparing to sell the house: Check the house's condition to ensure it's ready for sale. Inspect for any repairs, improvements, or cleaning needed. The house should be ready to move into, as most buyers want a house in perfect condition.
– Checking various expenses to determine the selling price: For example, transfer fees. It's essential to check the expenses that will occur during the sales process to set a suitable price and avoid losses. If you don't know the expenses and set the price too low, you may lose money.
While setting a high price might sell your house faster, you'll lose potential income. However, setting the price too high will make it difficult to sell. Therefore, the price should be appropriate to the expenses incurred.
– List your house on a reputable website to speed up the sale. Choose a website that is user-friendly and easy to navigate, with clear categories such as property type, location, and price. It should also cover various property types, including houses, townhouses, and condos.
After the sale is complete, the profits from the sale will be split.
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2) Joint Loan for Married Couples
This situation is similar to that of dating couples, but less common. The main problem with joint loans for married couples is that one partner's less-than-ideal financial history will negatively impact the better-performing partner, affecting the loan amount and potentially resulting in a lower approval rate.
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3) Joint Loans Among Relatives (Parents, Siblings, etc.)
The problems faced by this group when co-borrowing are partly similar to those faced by families: the co-borrowers may have less than ideal financial history, working as freelancers or in jobs with uncertain income and no clear proof of income, which can negatively impact the primary borrower's credit history.
Another problem is that when deciding to co-borrow, they didn't consider future ownership of the property. This is especially true for siblings and relatives who might one day get married or need to purchase property. They may find it difficult to obtain a new loan or receive a very low loan amount because their names are already on the co-borrower list.
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2. Ownership of the Property of the Co-borrowers
Remember that once a loan is taken out jointly, ownership of the property belongs to both parties. Transferring ownership or selling the property requires the consent of all co-borrowers, even if the primary borrower is the sole payer.
If problems arise and ownership needs to be reclaimed, legal action may be necessary. Proceedings with payment records or bank transfers demonstrating that the primary borrower was the sole payer may be required, and legal proceedings can take considerable time.
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3. Tax Deduction Rights
Interest on a mortgage can be deducted from personal income tax. The maximum deduction is 100,000 baht. If it's a joint loan, the interest eligible for tax deduction will be divided, even if the primary borrower is the sole person making the payments.
For example, if the home loan interest for the 2024 tax year is 80,000 baht, and there are two joint borrowers, it's divided by two, meaning each person can only deduct 40,000 baht from their taxable income.
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4. New Relaxed LTV Criteria for Joint Loans
Following the Loan to Value (LTV) regulations for housing loans, to mitigate the impact on joint borrowers who don't own the property, and to allow them to obtain more appropriate loans,
the Bank of Thailand (BOT) has considered relaxing the counting of loan agreements in cases of joint loans. If a borrower doesn't own the property, they will be treated as if they weren't a borrower in that case, since the purpose isn't for residence but merely to assist within the family.
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How are joint loan agreements counted?
The question is, how are joint loan agreements counted? Let's look at some examples:
Case 1: Borrower A already has one mortgage loan and is now applying for a joint loan with B, who has never taken out a mortgage before.
Case 2: Borrowers A and B have previously co-borrowed, and this time B is applying for a mortgage.
The principle for counting joint loan agreements is based on the borrower who holds ownership of the property. That is:
Case 1: If both A and B hold ownership of the property for the joint loan, the joint loan agreement is counted as A's second loan (LTV 90% or 80%). However, if B holds sole ownership of the property, this joint loan agreement is considered B's first loan and not A's second loan.
Case 2: In the first joint loan, if A held sole ownership of the property, the joint loan agreement is counted as A's first loan and not B's first loan. Therefore, B's individual loan this time is counted as B's first loan. However, if B also held joint ownership of the property in the first joint loan, the agreement would be counted differently depending on who holds ownership. This would count as B's second individual loan agreement.
For the reasons mentioned above, before applying for a joint loan, in addition to knowing the advantages that will lead to loan approval, you must also be aware of other limitations that may arise.
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Thank you for the valuable information from DD Property.
