Climbing that first rung of the property ladder can call for resourcefulness, and perhaps a helping hand from friends or family. Here are two options to buy your first home that you may not have considered.
A gifted deposit home loan
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 some cash to help their grown-up kids buy a home, lending an average of $64,000 per family.
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 want 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 like to see that you have the discipline to keep up with home loan repayments, and to satisfy this you may still be asked for evidence of genuine savings, often extending back three months.
Agreeing to go 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.
The common thread however is that if you can’t keep up the repayment on your home loan, the lender will likely turn to the guarantor to make good with the loan. This makes it important for your parents – or whoever you approach to act as guarantor – to carefully weigh up what they’re taking on.
It can be reassuring for your guarantor to know they may be able to nominate a percentage of your loan to guarantee rather than the full balance of your mortgage. Here too, this varies from lender to lender.
The financial plus of using a guarantor
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.
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