A joint home loan is a type of home loan that is offered in Malaysia. Unlike a conventional home loan, a joint home loan is applied by two or more individuals and is conferred on the names of all the applicants.
Upon a successful application, the applicants can use the loan amount to fund a home purchase on all of their names, becoming co-owners or joint owners of the property
The applicants can also be referred to as partners, joint-owners and co-applicants. In Malaysia, joint ownership runs in the form of a tenancy-in-common, where each owner’s shares will be divided and treated as separate from the outset, as provided by S343(1)(a) of our National Land Code (Kanun Tanah Negara).
Who Can Apply for a Joint Home Loan?
As long as two or more individuals are willing to be a party to a loan, a joint home loan can be applied. A joint home loan will significantly benefit the following: –
Married couple
Unmarried couple
Unmarried couple in consideration marriage
Such relationship will be governed by the Law Reform (Marriage and Divorce) Act 1976
Friends
Investment partners
How to Apply for a Joint Home Loan?
The first thing to do is to set out a clear and precise legal pathway for ownership. A joint home loan heavily depends on these factors, and setting out such pathways will be extremely useful in the event of a dispute or a disagreement.
If possible, the applicants can enter into a binding agreement with each other on their legal pathway for ownership and duties of each one of them.
The next step would be searching for the right bank or other financial institution that offers a joint home loan. Some examples of financial institutions in Malaysia that offer joint home loans:
Maybank Maxihome
Pros
Flexible repayment options
Flexible choice of facility
Higher loan eligibility
Repayment period of up to 35 years or until the age of 70, whichever comes first
Loan margin up to 95%
Flexibility to revise monthly repayment
Multiple methods for monthly repayment
Hong Leong Bank
Pros
Financing for both residential and commercial properties
Loan margin up to 90% or open market value, whichever is lower
Flexibility in monthly repayment value
Other banks such as CIMB Bank, Public Bank and HSBC all offer or afford the facility to obtain a joint home loan.
Documents Needed When Applying
Documents required to apply for a joint home loan are similar to a conventional home loan. The only difference is that all parties involved in the loan applicant must submit the required documents, which can be a hassle if one or more applicants cannot show proof of all the required documents.
A joint home loan in Malaysia is available to foreign nationals with the exception of Israeli citizens. Foreign national has two methods of obtaining a joint home loan:
Regional Preferred or Private Banking which a Malaysian bank maintains its presence; or
Local Preferred Bank or Private Banking, most likely an associate bank to a Malaysian Bank
The documents required for a joint home loan can be divided into three categories, identification documents, proof of purchase, and income documents.
Identification documents
For Malaysian applicant
Copy of a new identification card (NRIC)
For foreign applicant
Copy of an official passport with a minimum validity period of 6 months; or
The applicant is a permanent resident holder of Malaysia
Proof of purchase
For Malaysian and foreign applicant
Sale and Purchase Agreement (SPA); or
Developer’s booking form
Income documents
Salary applicants
Latest 3 month’s salary slip; and
Latest Employee’s Provident Fund (EPF) statement, or 3 months bank statement as proof salary is being credited
Commission applicants
Latest 6 month’s commission statement; and
Latest 6 month’s bank statement as a proof commission is being credited
Self-employed
Business registration document;
Latest 6 month’s business bank statement; and
Latest income tax payment receipt (Form B/BE)
Additionally, an applicant will need to declare any deposit statement, if any, such as fixed deposits, bonds, or investments.
Advantages of a Joint Home Loan
Higher budget
One of the biggest struggles for every homeowner when buying their house is budget constraints. The purchaser might have a sufficient budget but cannot find a property that offers excellent value for their money.
Another possible scenario is that a perfect home might exist, but the purchaser does not have the necessary budget or is ineligible for the required loan amount.
With a joint home loan, two or more individuals can pool their resources and financial capabilities to purchase a home. This pooling of resources can easily overcome the budget constraints that a single buyer might face.
Furthermore, the financial responsibilities and liabilities do not fall upon one buyer; instead, the burden is carried by all the individuals involved. This greatly benefits couples who are looking forward to their first home.
Easier loan approval
The joint income of the partners makes the loan application process easier and quicker. More sources of income are an encouraging sign for banks as there is more than one way that banks can recuperate the loan amount.
Lower entry cost
Perhaps the biggest hurdle that any home buyer faces when purchasing a property is the down-payment, which is usually 10% of the total value of the property being purchased. Homebuyers often struggle to come up with the down-payment as 10% of a property is still a considerable amount of money.
With a joint home loan, all the individuals involved can share the down payment, effectively reducing the burden of coming up with the down payment that a single purchaser would face.
A joint home loan also eases other entry costs such as booking fees, legal fees, and administrative fees, if any. Opting for a joint home loan also enables the individuals involved to share the property taxes, maintenance fees, and miscellaneous fees such as door tax, land tax and assessment tax.
Perhaps the most significant advantage of entry cost is that stamp duty imposed on a property during the purchase can be shared equally by all individuals. Stamp duty rates imposed in Malaysia are as follow: –
1% for the first RM100,000
2% for RM100,001 to RM500,000
3% for above RM500,000
Take a house that costs RM750,000. Applying the calculation above, the total stamp duty imposed on the property would be RM16,500. In addition, stamp duty will be imposed on the loan amount itself.
Taking the same house costing RM750,000 with a 10% down-payment, a total of RM3,375 of stamp duty will be imposed on the RM650,000 loan (90% loan). Hence, with a joint loan, the RM19,875 in stamp duty can be equally contributed and covered by all the partners.
Covering up
While in a conventional home loan, all financial responsibility and liability falls upon the sole proprietor and will be liable for default in payment. If the sole proprietor is unable to find the income to pay his monthly arrears, there is no other person that the bank can look to. But that is not the case in a joint home loan.
When one partner faces a shortcoming in his monthly commitment, the remaining partners can basically ‘cover’ for the defaulting partner. The partners can later decide how the faulty partner will reimburse their additional spending, and such a clause can be included in a contractual agreement between the partner if one exists.
Prove of commitment
Applying for a joint home loan can serve as proof of commitment to the relationship from the parties. This can be very helpful in a domestic setting, especially for married or unmarried couples.
Because a home loan is a long-term commitment, it can be presumed that the partners of a joint home loan are committing to a long-term relationship, at least until the end of the repayment period.
Disadvantages of a Joint Home Loan
Forego on housing initiatives
Today, housing initiatives are offered by banks and other real-estate schemes, such as the rent-to-own schemes by Maybank HouzeKEY, PR1MA and Smart Sewa by Rumah Selangorku. Such initiatives were envisioned by helping first-time homebuyers with lesser means.
Though the scheme considers the total income of a family when applying, the scheme does not afford provisions for a joint home loan. This is because the idea of a joint home loan is to enable home buyers to purchase a more expensive house than those available under the rent-to-own scheme.
Moreover, by applying for a joint home loan, the partners would also have to forfeit offers made by developers, such as waived legal fees, waives stamp duty and possibly rebates offered on selected properties. Partners of a joint home loan will have to bear these costs and cough up extra funding.
Forego RPGT exemption
Real property gain tax (RPGT) is a tax imposed on the proceeds made by property owners when selling a property. The RPGT exemption is a once-in-a-lifetime exemption on any chargeable gain from the disposal of a private residence.
The exemption rate is RM10,000 or 10% from the chargeable amount, whichever is greater. If the transfer of property is within a family, husband-wife, parent-child, or grandparent-grandchildren, the RPGT exemption is 100%.
In a joint home loan, the partners would have to forego the RPGT exemption as it would be impossible to determine which partner receives the greatest share of the chargeable gain.
It would also be unjust if all partners are taxed for the gains made by one individual. The difficulty in determining the RPGT in a joint home loan ultimately results in a joint home loan being excluded from the RPGT exemption.
All partners must have a credible CTOS/CCRIS rating
The Central Credit Reference Information System (CCRIS) is a system created by Bank Negara Malaysia Credit Bureau (BNMCB) that provides standardised credit reports on a potential borrower.
This system provides an avenue for financial institutions and lenders to assess the creditworthiness of a loan partner by referring to the recorded economic history of the partner. CTOS is Malaysia’s leading credit reporting agency (CRA) that facilitates credit extension.Today, it is common practice for financial institutions such as banks to refer to a loan partner’s CCRIS and CTOS score.
In a joint home loan, the CCRIS and CTOS score of all the partners will be scrutinised. If one of the partners is deemed uncreditworthy, then there is a high possibility that the loan partner will be rejected. The other partner’s CCRIS and CTOS score then becomes irrelevant.
Therefore, partners of a joint home loan must take great precaution in ensuring that all parties are deemed creditworthy before applying for a joint home loan.
Guarantor still needed
Like any housing loan, a joint home loan still needs a guarantor. The fact that more than one individual is responsible for a loan does not negate the need for a guarantor. The guarantor(s) of a joint home loan has it worse because they will guarantee for more than one person. Being a guarantor for one person is harrowing enough; what more being a guarantor for multiple people.
Unforeseen circumstances
There are a few unforeseen circumstances that may prove to be fatal to a joint home loan. One such occasion is when a married couple engaged in a joint home loan gets a divorce. A divorce can negatively impact a joint home loan since the parties do not want to be bound to one another.
Why would a person be paying monthly instalments for a house that they no longer wish to reside in? The consequences are more severe if the divorce is non-mutual, as one party might not want to sever the joint home loan. A divorce could also affect a joint home loan in the sense that a marital home may be subjected to child support or alimony.
Another common scenario is when one of the joint partners passes away. The deceased partner’s share will be ownerless (bona vacantia). A dispute may arise between the surviving partner and the deceased’s next of kin under the law of succession. This issue can be resolved if the partners include a provision in their wills or draft a contract on how a deceased partner’s share is to be dealt with.
A 3rd problem is the breakdown of family relationships in joint home loans between family members. A family relationship can break down unexpectedly and over minor issues. If this breakdown can be resolved, then the parties can remain in their joint home loan. Bear in mind that a breakdown between family relationships, especially when it comes to financing, can take years to be resolved.
The 4th unforeseen circumstances are a loss of trust between investment partners. If an investment partner is deemed unfit or has lost the other partners’ confidence, he or she can be voted out or be left out in activities relating to the property purchased with a joint home loan. As mentioned above, this scenario too can be resolved by drafting a contract between the investment partners.
What To Do in The Event of a Divorce, Break in Relationship, or Break in Agreement?
Sell the property
One of the easiest ways to resolve a conflict between partners of a joint home loan is to sell the property in question and split the sale proceeds. If the sale of property results in a loss, then the partners will share the loss equally.
The sharing of profits or losses will differ if the partners made uneven contributions to the joint home loan. For example, if a person contributes 60% in the loan, he will receive 60% of the proceeds or bear 60% of the loss suffered.
Purchase the share of the departing partner
If a partner wishes to leave the co-ownership, regardless of the reason, the other partner(s) can purchase the share of the former for an agreed price or at the market price of the property. In a joint home loan of more than two persons, the partner leaving can sell his shares equally to all subsisting partners.
If necessary, all parties to the joint home loan can enter into a contractual agreement, inserting a clause that requires the leaving partner to offer to sell his shares to other partners before deciding to sell his share to a 3rd party purchaser for value.
Sale of shares to a 3rd party
A partner looking to leave the joint-ownership can also sell his shares to a 3rd party purchaser for value. If the loan period has not expired or has not recouped the total repayable amount, the bank might not prevent such a sale.
It is possible to seek the bank’s approval before the sale, but it is unlikely the bank would allow such transactions. Thus, selling off shares to a 3rd party is a viable solution once the loan has been settled.
Retain ownership as usual
An unlikely but possible solution in the event of an unforeseen circumstance, the partners involved can choose to retain ownership of property as usual, at least until the loan is fully repaid. Opting for this solution spares the partners from an array of problems and avoid legal repercussions.
Court proceedings
If the partners cannot settle their differences out of court, they can elect to resolve their discrepancy in a court. However, the partners must bear the legal cost of settling a dispute in court, which at times might be more than the actual value of the property involved.
Should You Apply for a Joint Home Loan?
It depends on the individual whether they are ready to commit to a joint home loan. If the individuals involved share a common goal, purchasing a property, they can go for a joint home loan if a joint home loan is their best avenue.
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