What is Common Debt Reducer?
- It is a bank policy where they will only incorporate your percentage ownership of the debt into assessing your borrowing capacity. In certain situations, this can be incredibly beneficial.
- The Common Debt Reducer should be used only when an applicant cannot support the proposed loan and all the shared liabilities on their own.
- Typically, this is for a married couple where only one spouse applies.
How Do Banks Determine Borrowing Capacity?
- Generally, banks will consider your entire debt and not the amount you’re actually responsible for—generally 50% if you own property jointly. They will also only consider 50% of any rental income generated by that property.
- However, some lenders will consider your actual share—the percentage you’re personally responsible for—whether it be combined liabilities or living expenses. In such a case, it means that the banks will assess only 50% of the joint debt instead of 100%.
- In some cases, they will require you to assume 100% of the debt and also use all of your rental income.
Who can use the Comment Debt Reducer structure?
- Couples who want to apply for a loan separately.
- In order to have full control over the property and mortgage, which could be beneficial if there is a divorce in the future. However, spouses must consult with legal experts before doing so.
- If the partner has a casual position, or works part-time, income might not be stable enough to qualify for a mortgage.
- If a partner has just started working or become self-employed, they might not have enough of a track record to provide two years’ worth of tax returns and boost their chances for loan approval.
- If the partner has a low credit score, it might cause lenders to hesitate and decrease the chances of getting the loan approved. In general, A good credit file is one that has no defaults, bankruptcies, or judgments on it, and only a moderate number of inquiries.
What are the Requirements?
- Both partners are required to submit self-supporting income for their share of liabilities and current debts which is generally in the form of:
- Most recent home loan statements for the last 6 months;
- Updated Assets and Liabilities Position;
- Most recent Notice of Assessment;
- Two most recent payslips – proving a stable job for 3-6 months.
- However, as mentioned, banks will consider your entire debt and not the amount you’re responsible for.
- With joint tenants, each person will receive 50% ownership. In the case of tenants in common, the division depends on your agreement with your solicitor when you bought the home. This is quite common for co-ownership arrangements.
- Other than proving your income capabilities, you’ll also need to consider the location and property type of the security property as some might have restrictions.
- If you are Purchasing a property, you need a minimum deposit of 5%, but you may be able to borrow more if you have someone willing and able to guarantee your loan.
