Unfortunately, this scenario usually involves the ending of a relationship of some kind - it can be a hard one to talk about but these things do happen and it can get messy if things aren’t handled well. We’re here to help!
There are other scenarios where you may find yourself buying someone out of a property, like if you and a friend or relative purchased property together and one of you is moving on to something else, so it’s not always a sad ending!
This “buying someone out” process is instead of you both selling up, splitting the equity you have in the property and going your own way. This is where one person stays in the property and pays the other out for their share.
Let's talk about break-ups first.
You’re going to need a bit of a team on your side, so who is important here?
Your ex-partner - It's always a lot easier if you can agree on what you each wish to achieve before spending money on lawyers etc. But you each should obtain some legal advice before putting pen to paper to ensure you're both looked after. Arriving at a lawyer's office with a basic plan will save you both money!
Valuer - Getting an independent valuation for your property means there is no debate about what it is worth and you can make clear plans for dividing assets. It may also be a requirement of the bank, but in some cases (as long as you both agree and depending on your borrowing situation), a Real Estate Agent appraisal or a desktop (online) valuation can be used to save money.
Us! - Your Mortgage Team - Not much in the world happens without money these days and it's important that whoever wants to stay in the property can afford to do so. Plus if there is to be a payout then the other person will likely want to buy a home too. Especially if children are involved as it allows you to set things up for the future of your family.
If you're going through a relationship break-up, it's not an easy time in your life but with the right people around you and the right advice, you can come out the other side in a better place.
So...what’s the process?
Beyond all the emotional turmoil that may be going on for you, there is always going to be some tie to a family home and most of the time one of the parties will want to stay.
We get asked often "can you please arrange to have X person taken off the mortgage?” but it’s not quite this simple.
It can be simple however, if we follow a couple of key steps;
- Any bank (whether it's your existing one or perhaps another bank who may offer you a better deal) will assess the party remaining in the property for their ability to service the debt associated, plus whatever amount is required to pay the other person out their share. For example, Jo wants to stay in the property, take over the mortgage and pay Jamie out for the equity they have in the property. The property is worth $800K, lending currently is $300K. That means Jamie is entitled to half of the $500K equity and Jo needs to take over the $300K loan. Total lending Jo will need to be able to service is $550K ($300K existing and $250K paid out to Jamie).
- This is a new application, the same as any, and we'll arrange for a loan offer as normal so you've got the confidence you can borrow that money on your own.
- The bank will then need to confirm there is no further liability from or to either of you, usually in the form of a Relationship Property Agreement, which is prepared by a lawyer. Talk to us if you need a recommendation as we work with excellent and affordable lawyers all the time!
- We can work with both parties to ensure you are each looked after and with a broad knowledge of both sides, make the whole process easy for you.
- You will agree on a "settlement date" when the property will be transferred to the remaining person's name, and ideally the second person also is able to purchase a new property.
Buying out a friend or other family member
The process of buying out a friend or another family member and is most often not as emotion charged but the same process needs to be carried out.
In simple terms (read above for the nitty gritty detail) you just need to:
Agree on a value of the property
The person staying in the property gets a loan approval to cover the entire current lending and the equity they need to pay out to the other party
Choose a settlement date
The person staying in the property takes over the new lending associated with the property and the person leaving the ownership gets paid for their equity in the property.
Whatever the scenario and whoever is involved, we can help give you direction, connect you with the other best people to involve and help make the process of buying others out of your property as simple and painless as possible.