For some reasons, when you purchase a property, you may decide to have your own name on the title. Here are some examples that your property is solely under your name:

You are single;

You have a partner, but your partner doesn’t have a job income. You may think by having your own name on the title would allow you to borrow slightly more than a joint application with your partner.

There are also other reasons when people choose only to add a single name to a property’s title.

However, do you know only having your own name on the title and later you and your partner plan to purchase another property together, it may affect your new home loan.  Let’s use one case study to illustrate.

Kelly brought a house in New Zealand many years ago. The current market value of the house is $800,000. Her remaining balance of loan against this property is $200,000.

Recently, Kelly got married to her partner, Josh. They planned to buy a new family home worth $1 million together.

Kelly decided to rent out her existing home as an investment property, which bring her a weekly rental income of $500.

The couple approached us and discussed their situation with us to see how we could help them increase their borrowing power to buy a one-million-dollar house together because when they went to a bank, they were asked to come up with 20% cash deposit but they don’t have it.

After analysing their situation, we figured out their combined income are sufficient to borrow one million dollars. The issue lies with the deposit requirement. There are two ways to achieve their goal. 

How does property title under a single name could affect your future home loans?

Video Timeline:
1.Approach one: borrowing from one lender -- 02:58

2. Approach two: add your spouse to your house title, and borrow one million together from two banks -- 05:30

3. Even if the couple have $200k deposits, what’s the best loan structure for them? 08:08

Approach one: borrowing from one lender

If the couple apply for a home loan with the existing lender where Kelly holds her existing property, then they could borrow 1 million from that lender to buy their family home without a cash deposit. This is because:

Generally, you can borrow up to 70% against your investment property. When Kelly converts her existing home to an investment property, she could borrow up to $560k ($800k x 70%) in theory. As her current loan balance is $200k the equity, $360k, is sufficient to be used as the deposit of their family home.

Even though the existing house is under Kelly’s own name, bank can cross secure both properties.

Pros: relatively straightforward loan application process – only borrowing from one lender

Cons: Having all eggs in one basket. In case you have repayment issues, bank can take both properties. 

Approach two: add your spouse to your house title, and borrow one million together from two banks

If Kelly agrees to add her spouse, Josh, to her existing property title, then they could borrow another $200k from that bank. So, the remaining loan balance against Kelly’s house would turn into $400k.

Then, they could apply for an $800k home loan from a new bank because New Zealand banks can lend up to 80% for owner-occupied property. By this approach, they could borrow one million from two separate banks together without deposit.

Why is it necessary to add Kelly’s spouse name to her existing property title?

When you apply for a home loan, your lender will need to know the purpose of the money. If Kelly tells her bank that she wants to borrow another $200k for buying a one-million-dollar house, then her bank will need to understand where the remaining $800k come from?

If the title of Kelly’s house is only under her name, her existing bank have to use her own income for assessment. In her situation, her income is not sufficient to service another $1million on top of her existing $200k loan.

By adding Kelly’s partner’s name to the title of her existing house, her bank can user her partner’s income as well. Therefore, they could achieve adequate borrowing power to buy their one-million-dollar house.

Pros: Borrowing from different lenders helps increase the flexibility of your loan structure, which helps you protect your assets better.

Cons: Additional legal costs occur when adding a partner’s name to your house title. Also, not everyone is willing to add another person’s name to their own house’s title.

Even if the couple have $200k deposits, what’s the best loan structure for them? 

Even if the couple could have $200k in their pockets, as long as they are discipline, it’s probably still a good idea to add Kelly’s partner to her current property’s title and borrow one million dollars from a bank. They can have $200k of the $1million as a revolving facility. This is because:

The $200k cash saving can offset the interest on the $200k revolving facility therefore they only pay interest on the $800k. It does not cost them more interest, but it helps the couple access their $200k whenever it needed and increase their loan flexibility.

If Kelly have known the impact at the time of purchasing her first property, she would probably better off by having both names on the title to save unnecessary legal cost and give her more flexibility on their loan structure.

Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.

Prosperity Finance – here to help

Prosperity Finance looks at your loans strategically, empowering you to make the best long-term, informed decisions. We are professional mortgage brokers and are here to help. Give us a call today on 09 930 8999. 

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