Gifted deposit home loans
A gifted deposit home loan can help you get into a place of your own even if you’re finding it hard to save a deposit.
Climbing that first rung of the property ladder can call for resourcefulness, and sometimes, a helping hand from your family.
Gifted deposit home loans
Buying a home is an important goal for many Australians, and parents can be keen to lend a hand to help their adult children buy a first home. So much so that research shows almost one in three (29%) Aussie parents have stumped up cash to help their grown-up kids buy a home.
This sort of financial support has been dubbed the Bank of Mum and Dad, and the cash doesn’t always come with any strings attached. Close to seven out of ten families chipping in with their child’s first home deposit don’t expect to be repaid.
However, a gifted deposit home loan may not be as simple as barreling up to a lender with a wad of freshly minted cash. Lenders are likely to ask for evidence of where the money has come from – after all, it could be the result of a credit card withdrawal. This can make it necessary to provide a “gift letter” stating that the funds have been handed over unconditionally – in other words, there is no expectation that the money will be repaid.
Even with the benefit of a gifted deposit, lenders still like to see that you have the discipline to keep up with home loan repayments. To satisfy this you may be asked for evidence of genuine savings, often extending back three months.
Gifting a deposit vs guarantor
Not every family will have the funds available to contribute to a first home deposit. That’s okay, you could still muster the support of family members in other ways.
If your parents own their home, they may be able to act as guarantor for your loan.
The way this works is that the equity built up in mum and dad’s home will contribute towards the security for your loan. Having a guarantor can be a handy strategy if you don’t have a big deposit but you could manage regular loan repayments. And your choice of guarantor isn’t restricted to mum and dad – other immediate family members may also be able to help though this can vary between lenders.
As an added plus, having a guarantor in place can be a way to avoid paying lenders mortgage insurance. This could help you cut thousands of dollars from your upfront purchase costs. Remember though, as with a gifted deposit, you will still need to show lenders that you are able to meet the regular loan repayments.
Tips for parents gifting a guarantor loan deposit
If your parents are happy to gift a deposit towards your first home, they may need to put in writing that the cash is a gift – not an informal loan. But that’s pretty much where their responsibility ends.
It’s very different agreeing to go guarantor.
If you can’t keep up the repayments on your home loan, the lender will likely turn to your guarantor to make good with the loan. This makes it important for your parents – or whoever agrees to be your guarantor – to carefully weigh up what they’re taking on.
On the plus side, your guarantor may be able to guarantee a percentage of your loan rather than the full balance though again this varies from lender to lender.
A gifted deposit home loan or ask a relative to act as guarantor? Both options have pros and cons. It’s about weighing up what works best to help you into your first home sooner.
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- Chapter One : Getting started
- Chapter Two : Your Dream Home
- Chapter Three : Money Matters
- Chapter Four : Ways to Purchase
- Chapter Five : Understanding Interest Rates
- Chapter Six : Understanding Home Loans
- Chapter Seven : Lending Sources
- Chapter Eight : Getting Your loan
- Chapter Nine : Choosing a Home
- Chapter Ten : Steps to Settlement