With increasing property prices, and also the required 20% deposit to avoid mortgage insurance some young people are looking to the family for assistance to buy their first home. After all, it can take some time to save as well as pay rent.
Normally a 5% deposit would be minimum to get into a property so on a $400,000 purchase – that’s $20,000 PLUS there are other costs to cover like legal, pest & building inspections and also some of the Mortgage Insurance which the lender will not add to the loan.
With family assistance – you may avoid having to come up with a deposit at all. The lender takes security over the house you are buying and also a portion of your parents or family’s property – to enable you to borrow the full purchase (plus costs with some lenders). Different lenders have different policies relating to how much they will give you, and also what type of information they require from the family members assisting you.
We take a view that they are assisting you with putting their home on the line – so they should be inconvenienced the least! We also ensure that the family member is fully aware of their responsibility as well – so everyone is on the same page.
An issue that often comes up is – how long will it be before I can release the guarantee and stand on my own two feet?
Well, the answer is – as fast as you can make 10% equity. With capital growth you can rely on some improvement in the property you buy – but also with extra repayments, you can reduce your debt faster than the required repayments. Subject to bank approval at the time of application – if you can aim for the 10% mark over say a 3-5 year period then you can apply for a stand-alone assessment/mortgage.
We suggest a 3-5 year plan to enable both parties to be able to move forward.
As with most loans these days, there are various options and choices in the market. And Family Pledge or guarantee loans are very different between lenders. You need to discuss your own situation with a professional mortgage adviser to get the best advice for you.
Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.
