How to buy a house in a de facto relationship

The process of buying a property is similar for both married couples and couples in de facto relationships. That said, some of the steps involved may require some extra consideration for de facto partners, as they could make a difference to future personal and financial goals.

Are you in a de facto relationship? 

According to Australia’s 1975 Family Law Act, a person is in a de facto relationship with another person if:

1. the persons are not legally married to each other; and
2. the persons are not related by family; and
3. having regard to all the circumstances of their relationship, they have a relationship as a couple living together on a genuine domestic basis.

The exact definition of what constitutes a de facto relationship may vary on a case-by-case basis. Where necessary, a court will decide based on a wide variety of factors, from the length of the relationship to financial arrangements.

When you’re getting a home loan, many banks and mortgage lenders are more likely to be more concerned about your personal financial situation than your domestic living situation.

Which ownership agreement? 

Both de facto and married couples can choose how they’ll split the ownership of any property they buy together. The two most common arrangements are as Joint Tenants or as Tenants in Common.

Joint Tenants both hold equal claim on the property title, making them equally responsible for the mortgage repayments. If one partner dies, in most cases the other partner will automatically inherit their share of the property. If the couple splits up, ownership of the property will be divided between them along with their other assets.

Tenants in Common choose to split their ownership of the property in a predetermined ratio, which could be 50/50, 60/40, 70/30 or any other preferred split. The responsibility for the mortgage and its repayments is then split along the same lines – for example, a couple could have one partner making 70 per cent of each mortgage repayment while the other makes 30 per cent. A partner can choose to sell their share of the property to someone else, or even buy out their partner’s share. Ownership of the property will be considered when splitting assets in the event of a relationship breakdown. If one partner dies, their share will be inherited in accordance with their will, and may not automatically go to the other partner.

The best choice of ownership agreement for you and your partner may depend on a wide variety of factors, including the nature of your relationship, how long you’ve been a couple, and your future plans. You may want to consult with both a home loan expert such as a mortgage broker as well as a legal expert such as a solicitor before making a decision.

Saving a deposit 

To apply for a home loan to buy a property, you’ll need a deposit. While most lenders prefer a deposit of at least 20 per cent of the property value (this will let you avoid Lender’s Mortgage Insurance), this can be a big ask when it comes to property prices in some of Australia’s capital cities and regional centres.

You may be able to combine your savings with those of your de facto partner to make up your deposit. Depending on your personal and financial situation, you may be able to qualify for one or more grants or incentives to help you build a deposit (e.g. the First Home Owner’s Grant in your state or territory) and/or buy a property with a smaller deposit while avoiding LMI (e.g. the Home Guarantee Scheme). You can often combine your grants and incentives with those of your partner to expand your range of potential options.

Do you need a guarantor?

Another way to get a home loan with a smaller deposit while avoiding LMI is to apply with the help of a guarantor – someone who guarantees your home loan with the value of equity in their own property.

Banks and mortgage lenders are likely to require that your guarantor is a close relative, such as a parent or grandparent. This could be a potential complication for de facto or married couples, as if they default on their repayments and the guarantor must take responsibility for the loan, this could put stress on their relationships with their family, and each other. 

Compare home loans

It’s important to look at more than just the interest rate when comparing mortgage offers. The fees, features and benefits could all affect the suitability of different mortgage products for de facto and married couples in different domestic and financial situations, and with different goals for the future. 

If you’re not sure which home loans may be best for the needs of you and your partner, you may want to contact a mortgage broker for more help.

Compare home loans in Australia