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How can family help First Home Buyers

How can family help First Home Buyers

Every lender has their own terms and conditions, and this is intended only as a general guide to understanding this topic. Contact us to discuss your individual circumstances.

Gift from family

The family could provide a gift of money to the purchaser. If it isn’t to be treated as a repayable loan by the bank, then the family member giving the gift will need to provide a statutory declaration signed by a Justice of the Peace. An example of how it may be worded:

I have gifted (my daughter) (name) $100,000. This is not a loan and is not repayable and is non-refundable.

The gifter, will also need to provide proof to the lender that the money is available to give away, by providing copies of bank statements.

Benefits

It is straight forward, and the lender won’t have to take into account the borrower’s capacity to repay, as it isn’t a loan.

Disadvantages

The purchaser/borrower may also have to provide proof of Genuine Savings, in essence to prove that they have the capacity to manage a regular financial commitment.

The money legally becomes the purchasers with no recourse to the gifters – a true “gift”.

Future relationships, eg de facto, marriage etc will mean that a portion of the property may become an asset of the other party.

Loan from family – term loan

A loan that is repayable to the family on a regular basis. It may be monthly repayments, or repayable at a certain time. There may or may not be interest charged.

Benefits

The family have recourse to the money

If a market rate of interest is charged, then the family don’t lose the investment value of their savings.

Disadvantages

The lender will assume that the loan is similar to a personal loan, and will assume a standard variable interest rate, probably with a buffer to calculate loan repayments when calculating the borrower’s capacity to repay the home loan.

Loan from family – repayable on sale

Funds to complete from parents – not a gift, but a zero repayment loan only repayable on sale of property. Legally documented and secured behind the lenders’ first mortgage by caveat only.

Benefits

Protects the parents money from possible claims from future relationships that the borrower may have.

Disadvantages

Not a lot of lenders will accept this. Other strengths and mitigants in the loan application will have to be present.

Family Equity Pledge

A family pledge style of home loan option allows family members with equity in their property to help their children bridge the deposit gap and cover up front borrowing expenses by providing a limited guarantee in support of the customer’s loan application. The purchaser will be able to maximise the amount they can borrow against their own security. i.e. the purchase property, with this limited guarantee from a family member.

It is excellent for both homebuyers and investors that have good ability to repay, but lack the sufficient equity to secure the additional funds they need to meet up front loan costs and expenses associated with the purchase of their home or investment property.

Benefits

Allows maximisation of the amount you can borrow – up to 100% of the purchase price, plus costs such as Stamp Duty and Legal Fees.

Helps reduce or avoid Lenders Mortgage Insurance premiums.

Disadvantages

A mortgage is taken over the family member’s property, which then can’t be sold until the limited guarantee is either paid or replaced.

Independent Legal and Financial advice must be received and paid for in addition to normal bank fees.

Family members offering the limited guarantee will become liable for any shortfall to the limit of the guaranteed amount, in the event of a mortgagee sale of property.

Family as co-borrower

Family can be co-borrowers on the loan to purchase the property. If they are co-borrower, they will also have to be on the title of the property being purchased.

Benefits

All incomes (and liabilities) can be used when calculating borrowing capacity.

Disadvantages

First Home Owners Grants may be forfeited for children.

If parents are also first home buyers, none of the borrowers will be eligible for the Grant in future.

Family as income guarantor. This is not currently available from any conventional lenders in Australia.