An average home buyer in Australia needs to put down over $100,000 as an upfront deposit to purchase a property. Not surprisingly, many first home buyers find it difficult to get into the market. With house prices at record highs across the country there's no wonder why first home buyers are looking to the bank of Mum and Dad for help.
While gifting may be possible for cashed up parents this is quite often not a possibility for everyone. That's where family guarantees come into the picture. By utilising your parent’s equity in the family home you can borrow up to 100% of the purchase price plus stamp duty and avoid massive costs like Lenders Mortgage Insurance (LMI).
How the guarantee works is best seen in an example of one of our clients.
Adam and Nicole are a young couple with well-paid stable employment but haven't managed to save enough to purchase a $550,000 home. Both earn enough to service the home loan but just haven't saved enough to buy right away. Luckily, Nicole's parents were able to step in and guarantee their purchase using their family home. Adam and Nicole were able to get into the market faster and without spending thousands on Lenders Mortgage Insurance.
But what about the Guarantors?
For Adam and Nicole's parents not much changes. They are not required to make repayments and there whole home isn't placed at risk rather it is limited to the guaranteed amount. The key risk to the guarantor lies in the borrower’s ability to make repayments. Over time as property prices increase and repayments are made the guarantors are released from their obligations.
Setting up the Family Guarantee?
Trust me when I say this sounds more painful than it is. Different lenders have different rules and allow for different guarantee options including term deposits and savings accounts as well as using the standard property scenario. A conversation with us will clarify ways to achieve the outcome you are after and a very pain free manner.
