Parents are often happy to help their children, and what better way to help them than assisting them in purchasing a home. They understand how much hard work, time and effort goes into saving to get into the market. Getting a deposit together to buy your first home isn’t easy. So don’t be shy in asking for some help when needed. There are a number of ways family can help assist you in purchasing your new home and getting that much needed home loan.
Family guarantee – A family guarantee or family pledge is when a member of your family puts up their house as security on your loan. This is done when you don’t have a substantial deposit and it may help you to avoid paying for Lenders Mortgage Insurance (LMI). (FYI – You will require a deposit of 20% if you want to avoid paying Lenders Mortgage Insurance (LMI)). You will also still be eligible for the First Home Owners Grant (FHOG). Further, you can limit your guarantee which means you have the option to guarantee a portion of the loan rather than the full amount. This also means that after some time the loan repayments have been made and the valuation of the home increases, you will be able to be released as the guarantor.
Binding financial agreement – When borrowing from the: “Bank of mum and dad” make sure you have a binding financial agreement. Whilst it may seem uncomplicated to simply take a loan from your parents you want to make sure that all parties concerned know what the expectations are along with what share of the property each owns as well as accommodation expectations. You don’t want to come home from work one day and find your parents have moved in!
Become a co-applicant – Sharing the responsibility of buying a house with someone else may help you get into the property market sooner than expected. This gives you the opportunity to share the deposit amount, the mortgage as well as any maintenance required to the house. While splitting all the expenses sounds more affordable it can also put a strain on a relationship to have a financial commitment with another person. Make sure you are up to the challenge before signing loan contracts and a co-ownership agreement. It’s best to seek legal and financial advice before committing to an agreement.
Assistance in kind – Saving for a deposit is getting more difficult and lender’s often want to see at least 5% in genuine savings. If your parents or family member gift the deposit to you the lender may request a gift letter that states the gift is unconditional, non-repayable and non-refundable.
There are several ways to enter the property market with assistance from family and friends. Make sure before you commit to any option that all parties involved are pleased with the arrangement. Buying a house is a very exciting financial opportunity and a little help can make all the difference in setting up your future.