Getting a Home Loan in Australia if you're living overs...
29 Nov 2023
Saving for a deposit is one of the biggest hurdles when looking to break into the property market as a first home buyer. To help break down this barrier, family members such as parents will often provide financial assistance in the form of a deposit to help reduce the amount of time needed to save.
As the name suggests, gifted deposits are ‘gifts’ to the home buyer typically with no strings attached. Gifted deposits are most likely received from family members, whether that be parents or as an inheritance, meaning there is no expectation the money is to be repaid.
Gifted deposits can be used to help you place a foot in the door of the property market, provided you are able to pay at least 10% of the purchase price and make regular monthly, fortnightly or weekly repayments. This is also known as the loan-to-value ratio (LVR). You may also be required to pay Lender’s Mortgage Insurance (LMI) depending on the lenders' conditions and the amount of the deposit.
Utilising a gifted deposit for a home loan does not come with any additional interest rate fees or charges, meaning customers can expect to receive a competitive rate similar to a normal home loan.
When it comes to getting a home loan using a gifted deposit, lenders require proof that you are able to service the loan to make consistent mortgage repayments. In many cases, this means lenders will require a deposit to consist of genuine savings from income on your behalf alongside the gifted deposit, to demonstrate your ability as a responsible borrower.
Depending on the lender, you may need to hold the gifted deposit for a certain period of time before it can be considered genuine savings to put towards your home loan.
As a rule of thumb, parents or close relatives are eligible to give you a gifted deposit. If the gift is coming from a distant relative or your extended family, in most cases the mortgage lender will seek to understand your relationship before granting mortgage approval.
In order to use the gift deposit, lenders will require a form of documentation or letter as a legal statement detailing that the funds have been handed over unconditionally without the expectation of repayment. A witness may also be required to sign and date the letter.
Despite receiving a deposit as a gift, depending on the location of your potential purchase and market movement, the gifted amount may not be enough. Instead you may opt to have a guarantor home loan, whereby your home loan takes advantage of the equity in another property as security i.e. relatives or close friends.
Generally speaking, a gifted deposit and guarantor home loan serve two different purposes. One, being the gifted deposit, will directly reduce the final loan amount. The other, being the guarantor, allows you to increase borrowing capacity up to the full purchase price of the property.
While it may be nice to have a significant chunk of cash wiped away from the loan amount with a gifted deposit, those who may struggle to amass a large deposit may look to guarantors to enter the property market. Not only can a guarantor increase borrowing capacity, it can aid in avoiding paying thousands in LMI expenses.
Choosing between the two depends on the availability of funds, your financial position and your ability to service a mortgage. Ultimately if your family is in a position to provide you with a gifted home loan deposit, then there is no commitment on your behalf to repay the money. Whereas if a guarantor is required should you fail to make mortgage repayments, the spotlight will instead shine on them which could result in greater financial implications for both you and the guarantor.
If you are looking to take the first step to achieving your new home dreams, check out our competitive home loan rates or chat to one of our lending specialists today to help you place your best foot forward.Get pre-approved
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