February 01, 2014
Trying to save at least 10% of the purchase price as a deposit for your new home can be quite challenging, particularly if you are not living at home.
Government grants can help but are not the whole answer. Often, lenders like to see a regular savings plan as this demonstrates your ability to save and ultimately commit to the repayment of a mortgage loan. If you have a good income and are part way towards your savings goal, then financial support from your family may help you to enter the property marker sooner.
Some parents may be in a fortunate financial position to “gift” you a sum of money. If so, they will need to deposit the funds into your account prior to you applying for a home loan, or complete a “Gift Declaration” which confirms that it is not a loan and is not repayable by you. The gift does not need to be for a minimum amount but does need to be sufficient to ensure savings plus government grants plus gift total at least 10% of the purchase price.
More often, however, parents have worked hard to pay down their home loan, so are not able or don’t want to provide a cash gift. In these instances, a “Family Guarantee” may be more appropriate as it uses equity in their home rather than cash.
Typically, a “Family Guarantee” is limited to a maximum of 20% of the purchase price of the new home. On occasions, lenders may also allow the guarantee to include property purchase costs but normally, your savings and any government grants should cover these costs. Usually, two new loans are set up, BOTH in your name. The “primary” loan is typically for 80% of the purchase price and is secured by a mortgage over your new home. The “guarantor” loan is for the balance and is secured by a mortgage over the guarantor(s) home. The lender will assess your ability to make repayments on BOTH loans as you are primarily responsible for them. In the event that you are unable to make repayments to the “guarantor” loan, then the lender may legally require the guarantor(s) to meet them. The guarantor(s) are not legally liable for repayments towards the “primary” loan.
Family guarantees are not for everyone and guarantors usually need to obtain legal and financial advice to satisfy lender requirements. However, they do allow close family members to support you without affecting the own personal cash position which is important in many cases. They can also potentially save thousands of dollars in Lenders Mortgage Insurance.
To see if this option is suitable for you, please call us:
Tamara on 0409 905 113 firstname.lastname@example.org Mark on 0403 577 287 email@example.com