Family assistance has always been a common way for first home buyers to boost their funds for a minimum deposit, particularly for those who rent. Lending enquiries involving family assistance don’t seem to be any more or less common than previous years, but there are certainly more options than just the bank of Mum and Dad these days.
Nowadays Australian first home buyers have far greater capacity to purchase owner-occupied property with a smaller deposit and without family assistance, largely due to home buyer assistance options provided by Federal and State Governments.
For eligible applicants, deposit support can be obtained through the Home Guarantee Scheme, First Home Owner Grant, HomeStart (SA), and Stamp Duty Exemptions (available in certain states). This can reduce the deposit contribution for a first home buyer to as little as 2%-5% of a property price, with capacity to also avoid paying Lender’s Mortgage Insurance. Purchase price caps do apply, designed to limit first home buyers to affordable properties.
For some time, family assistance has been limited to deposit / security support rather than the affordability assessment of a loan. With loan affordability the primary concern for most first home buyers, responsible lending measures ensure first time borrowers are assessed on their individual ability to repay a proposed loan.
How can your family help you out with buying your first home?
Whilst there is Government financial assistance for first home buyers, a family guarantee or gifted funds remain common pathways to homeownership.
Family members can act as security guarantor by using equity in a property (or a term deposit) to assist their children/sibling with the minimum deposit for their first home.
The guarantee can be limited to a specific amount which helps provide certainty and allows the guarantee security to be released, upon request, when there is sufficient equity in the borrower’s property.
There are clear guidelines to ensure the family guarantor is comfortable taking on responsibility regarding the secured debt and has received appropriate legal advice.
There are a few things to be considered before making this decision:
- Guarantor(s) will be signing a legal contract is an agreement to repay the loan if the borrower can’t meet their obligations.
- Independent financial and legal advice is recommended/expected to ensure all obligations and liabilities are understood.
- A Guarantor(s) can’t be released until there is sufficient or agreed equity available in the borrower’s property.
Gifted funds are also a common way family members assist first home buyers with a purchase. The nature of the gift is important, whether it is genuinely non-repayable or not. The nature of the gifted funds will need to be declared by the donor.
Any repayment terms of gifted funds would need to be declared and factored into a loan affordability assessment.
Again, we would recommend legal advice regarding gifted funds to a family member to assist with purchasing an asset such as a residential property.
Why do First Home Buyers need so much help in the current market?
Simplistically, increased house prices (particularly in the last decade) have led directly to an increase in the minimum required deposit to purchase.
It is no secret that our State and Federal governments are attempting to address a residential property supply issue, which in turn influences many hopeful first home buyers into the rental market.
The capacity to meet rental payments and save for an appropriate deposit is somewhat affected by the current cost of living issues.
Do I need to prove 5% genuine savings with a Family Guarantee or the Government Guarantees?
Depending on lender, yes you may have to prove 5% genuine savings in order to qualify for a loan, specifically if you intend to take advantage of a Government backed guarantee.
There’s good news for renters looking to buy their first property. A genuine savings assessment could include rental payments which have been managed through a legitimate property manager and agreement. Read more on 5% genuine savings and rental history here – Genuine Savings – Using Rental History
Some lenders who offer a family guarantee product may not need to verify genuine savings, but it’s a really beneficial practice for those who can manage it. Displaying capacity to meet loan repayments will give you a big green tick in the eyes of a credit assessor.
Why should I use a broker instead of going directly to a bank?
To put it simply, a broker will go the extra mile to educate and prepare you for a finance application, ensuring a higher chance of loan approval success.
We operate with Best Interest Duty, which means our core function is to look out for you and fit you with a suitable product that you can be approved for and will actually benefit you when compared to the wider market.
A Bernie Lewis Home Loans Mortgage Broker will be there for you in the long-term, carefully managing your finance as the market changes and your lifestyle evolves.
Give us a call on (08) 8300 8300 to chat with a professional broker, or check out our expert team here – BERNIE LEWIS MORTGAGE BROKERS
*The information provided in this article is general in nature and does not take into account your personal circumstances. Since everyone’s personal situation is different, this article should not be taken as advice.