Family Boosts: The Pros and Cons of Getting Help from Mum and Dad to Buy Your First Home

20 Oct Family Boosts: The Pros and Cons of Getting Help from Mum and Dad to Buy Your First Home

Getting a helping hand from family can turn the dream of owning your first home into a reality much sooner. It can boost your deposit, lower your loan costs, and take some of the stress out of the process. And if that kind of support isn’t on the table, there are still plenty of smart ways to get into your first home sooner!

Saving a first home deposit can be an endurance test.

Nationally, it takes an average of 5.6 years to save a 20% deposit. The catch is that deposits tend to grow slowly, while property prices can rise quickly. In the past 12 months alone, home values have climbed 4.8%.  For first home buyers, the goal posts can seem to be constantly shifting outwards.  Enter the Bank of Mum and Dad.

Research shows close to one in three (29%) home owners with a mortgage received financial help from their parents – about $40,000 on average. But without careful planning, the generosity of parents won’t always get first home buyers over the line for a home loan.

Here’s what else you need to know.

Hidden traps of the Bank of Mum and Dad  

Parents can help first home buyers in a variety of ways – something as simple as letting adult kids live at home for longer can make a significant difference.

When cash payments are part of the picture, three points are worth noting:

1. A ‘gift’ may need to be declared in writing: a lender may ask for written evidence that a cash gift is exactly that – a no-strings-attached payment that mum and dad don’t expect to be repaid.
2. A loan from parents could reduce borrowing power: some parents may prefer to loan their adult child money to help with a first home purchase. If that sounds like you or your parents, it’s important to speak with us first. Some lenders may look on a loan from parents as an informal personal loan, and the required repayments could lower a first home buyer’s borrowing power.     
3. Evidence of regular saving is still essential: support from the Bank of Mum and Dad doesn’t eliminate the need to save for a deposit. Lenders typically want to see evidence of regular saving, often spanning three to six months. This savings track record shows a first home buyer has the discipline to manage home loan repayments. 

Other ways Mum and Dad can assist in the purchase of your home

A guarantor structured loan is a great way to cover that seemingly “unreachable” 20% deposit. Guarantor loans allow you to use the equity from a family member’s property to assist in purchasing a property. Guarantor loans allow you to:

• Borrow up to 100% of your property value plus costs – without paying any Lenders Mortgage Insurance (LMI)
• No need for a full 20% deposit
• Helps you borrow more

Helping hands that don’t involve Mum and Dad

Parents always want the best for their kids. However, no one benefits if parents jeopardise their own financial wellbeing to give their adult children a leg-up into the property market. If parents cannot, or choose not to, offer children financial support buying a first home, there are other options to consider:

– The 5% deposit Home Guarantee Scheme: this scheme lets first home buyers get into the market with just a 5% deposit and zero lenders mortgage insurance. Recent changes to the scheme mean it now comes with unlimited places and increased property price caps.

– The First Home Super Saver Scheme: this allows first home buyers use their super to grow a first home deposit. It’s estimated the scheme can see first home buyers save a deposit around 30% faster than a standard savings account. 

– Co-buy with siblings or friends: sure, it’s not for everyone. However, by teaming up with a sibling or mate you can boost your buying power and share costs. We can explain the home loan options if co-buying is something you’re thinking of.   

Talk to us to get the ball rolling

Buying a first home may not be easy. And not everyone has parents who can help give them a leg-up into the property market. But there are many different strategies that can help first home buyers. 

Contact us to understand all the options open to you – you could be ready for your first home loan sooner than you think.