Buy Your Parents' Property

If your parents want to sell their property to you for less than its market value, the discount may help you qualify for a home loan with a smaller cash deposit.

Lenders often refer to this as a favourable purchase. The important figure is not only the price your parents agree to accept. The lender’s valuation, your loan amount and the lender’s favourable-purchase policy determine how much of the discount is recognised as equity.

What Is A Favourable Purchase?

A favourable purchase is when you buy a property below its market value, usually from a family member such as your parents.

For example, your parents might sell you a property valued at $500,000 for $400,000. The $100,000 difference between the valuation and purchase price represents equity in the property.

This matters because some lenders recognise that equity when assessing the loan. You may not need to contribute the same cash deposit that would normally apply when buying the property from an unrelated seller at market value.

The lender still needs to assess your income, expenses, debts, credit history and ability to repay the loan. A large discount does not replace normal serviceability requirements.

How Much Can You Borrow When Buying A Property From Your Parents?

The amount available depends on the lender, valuation and strength of your application.

Our favourable-purchase options include:

90% of the property value: No genuine savings required under eligible lender policies.

95% of the property value: LMI applies and you must show at least 5% in genuine savings.

100% loans: Available through some lenders where an acceptable guarantor is used.

A common point of confusion is the difference between borrowing a high percentage of the property’s value and borrowing the full purchase price. In a favourable purchase, the family discount changes that calculation.

For example, if a property is valued at $500,000 and your parents agree to sell it for $400,000, a $400,000 loan represents 80% of the property’s value but 100% of the agreed purchase price.

What Are The Benefits Of Buying Your Parents’ Home?

A favourable purchase gives parents another way to help their children buy property without necessarily providing a cash gift or using their own home as additional loan security.

Depending on the transaction, the benefits include:

Buying below market value: Your parents agree to accept less than the property’s assessed market value.

Using the discount as equity: An eligible lender may recognise the difference between the purchase price and valuation when calculating the LVR.

Reducing or avoiding LMI: If the loan is 80% of the lender-assessed property value or less, LMI will generally not apply under the lending options described on this page.

Giving your parents sale proceeds: The transaction provides your parents with funds from the sale and may also clear an existing mortgage over the property.

Avoiding real-estate-agent selling costs: A direct family transaction does not require the property to be marketed through an agent.

Starting with equity: A below-market purchase means the property may be worth more than the amount you paid for it from settlement.

Avoiding a second property as security: Unlike a guarantor structure, the favourable purchase itself may provide enough equity for the proposed loan.

The family relationship does not remove the need to document the transaction properly. We recommend that both parties obtain separate legal advice and use the normal conveyancing documents, including a Contract of Sale where appropriate.

This is particularly important where parents intend to continue living in the property after settlement or where other family members have an interest in how the property is transferred.

How Does Buying Your Parents’ Property Below Market Value Work Step By Step?

Start by agreeing on a purchase price with your parents. The next issue is establishing the property’s market value. The lender’s valuation matters because it affects the LVR and how much of the family discount the lender recognises as equity.

Home Loan Experts can arrange upfront bank valuations with eligible lenders before the loan is submitted. Depending on the scenario, our brokers may order up to three valuations.

This is useful because valuations can differ between lenders. A higher supported valuation results in a lower LVR for the same loan amount, which may affect the deposit requirement and whether LMI applies.

For example:

• Agreed purchase price: $450,000
• Bank valuation: $500,000
• Proposed loan: $450,000
• LVR based on the valuation: 90%

In this example, you are borrowing the full $450,000 purchase price, but the loan represents 90% of the property’s assessed value. An upfront valuation also gives our brokers a clearer picture of any cash you need for the purchase before choosing a lender.

Who Can Buy Their Parents’ Property Below Market Value?

Favourable purchases commonly involve a parent selling property to a son or daughter.

Other below-market-value transactions may also qualify, but the lender will look at the relationship between the buyer and seller and the reason for the discounted price.

This distinction matters. A genuine family transaction is different from an unrelated seller accepting a low price because of the property’s condition, a distressed sale or unusual contract terms. The lender still needs to establish an acceptable market value and understand the transaction.

If you’re buying below market value from someone other than your parents, see our Purchasing A Home Below Market Value page.

Do You Need A Deposit To Buy Your Parents’ Property?

You may be able to buy your parents’ property without contributing a traditional cash deposit if the discount provides enough equity for the lender.

Genuine-savings requirements still apply to some higher-LVR loans.

For example, assume:

• Property Value: $500,000
• Purchase Price: $475,000
• Loan Required: $475,000

The loan represents 95% of the property’s value. Under the lending option described on this page, you would need to demonstrate genuine savings equal to at least 5% of the $475,000 purchase price, or $23,750.

If your parents instead sold the property for $450,000 and you borrowed that amount, the LVR would be 90%. Under eligible lender policy, genuine savings would not be required.

If they sold it for $400,000 and the lender accepted a $500,000 valuation, the loan would have an 80% LVR. This structure may remove both the traditional deposit requirement and LMI.

The distinction between purchase price and property value is critical. Two borrowers purchasing the same $500,000 property from their parents may have different deposit and LMI requirements simply because the agreed purchase prices and required loan amounts are different.

Home Loan Experts also have lending options for some favourable-purchase scenarios where the required loan includes purchase costs. Eligibility depends on the lender and the complete application.

Tips When Buying Your Parents' Property Below Market Value

Check How The Lender Calculates The LVR

Some lenders recognise the property’s assessed market value rather than relying solely on the discounted purchase price.

For example, if a property is worth $1.5 million and the proposed loan is $900,000, the loan represents 60% of the property’s market value.

The lender’s treatment of the transaction matters because favourable-purchase policies are not identical. A structure that works with one lender may be assessed differently by another.

Don’t Assume The Family Discount Removes Purchase Costs

Buying below market value does not mean every purchase cost is calculated from the discounted price.

Stamp duty treatment needs to be confirmed for the state or territory where the property is located. Your conveyancer or solicitor can advise which value the relevant revenue authority will use and arrange any valuation required for duty purposes.

Budget for these costs before deciding how much you need to borrow.

Get The Valuation Before Relying On The Equity

The equity exists for lending purposes only to the extent that the lender accepts the property’s value.

If your family believes the property is worth $600,000 but the lender values it at $550,000, your LVR and required contribution need to be calculated using the lender’s accepted figure.

This is why we prefer to establish the valuation early in a favourable-purchase application rather than structure the loan around an assumed property value.

Document The Arrangement Properly

A family sale can look straightforward because the buyer and seller trust each other. The loan, property transfer and legal obligations still need to be clear.

Separate legal advice is particularly useful where:

• your parents will continue living in the property
• rent will be paid after settlement
• your parents still have a mortgage
• other family members may have an interest in the arrangement
• the agreed price is substantially below market value.

Clear documentation reduces the risk of a family agreement creating problems during the lender’s assessment or after settlement.

Talk To A Broker Who Specialises In Family Property Purchases

Favourable purchases require more than finding a lender willing to accept a below-market sale.

We look at the lender’s valuation, proposed loan, resulting LVR, genuine-savings requirements, LMI position and the amount of cash needed to complete the transaction.

Establishing those figures early helps identify whether the discount from your parents is enough to support the loan or whether you need additional funds or another structure.

Call 1300 889 743 or complete our free online assessment form to have your situation assessed.