More and more first home buyers (FHBs) aren’t saving their own deposit to buy a home. It’s true!
Since the 2009, the proportion of FHBs that have used sources apart from savings as a deposit has increased by 43%, with the majority of these alternate sources coming from credit cards and personal loans.
You usually have to save a deposit yourself to meet standard genuine savings requirements but some banks will accept a home deposit borrowed from parents.
Can I borrow my deposit?
Most banks actually require your deposit to be genuine savings but not all lenders are the same.
You may be able to use the following no genuine savings options to qualify for a home loan:
Getting approved for a borrowed deposit home loan can be difficult and you’ll need to have a formal agreement in place with your parents or immediate family.
Please call us on 1300 889 743 or complete our free assessment form to speak with one of our mortgage brokers to find out whether this no genuine savings solution is right for you.
How do I get approved?
The most important step you can take is to apply with a lender that will accept a deposit that you’ve borrowed from your parents.
Most banks have a strict policy that no part of your deposit can be borrowed.
Making regular deposits to a savings account is a reflection of your character as a borrower and a sign that you’ll be able to make your mortgage repayments.
Luckily, not all lenders have the same requirement for genuine savings.
In fact, some lenders are willing to accept a deposit that you’ve borrowed from your mum and dad because you’re more likely to pay the loan back than if you were to get a personal loan.
Bear in mind that the repayments you make to your parents on the borrowed deposit, including any interest, will be taken into account when the bank calculates your borrowing power.
Only borrow the amount you need from your parents: any savings you’ve made yourself means the bank is more likely to approve your mortgage application.
How do we make a legal agreement?
When it comes to a borrowed deposit home loan, you’ll need to provide the bank with a loan agreement that you’ve made between you and your family.
This can be drafted up by a solicitor at a cost, which can vary depending on the practice and where you’re located.
You and your parents should seek separate legal advice to discuss what would happen if you’re unable to repay your borrowed deposit or in the event you can’t make your mortgage repayments.
To safeguard against this, your parents may decide to secure their loan with a second mortgage, otherwise known as a caveat.
In this case, the first mortgage will continue to be held by the original lender and each mortgage paid off in order of priority.
That means if the property needed to be sold, the first mortgage would be paid out with the remaining used to pay out the second mortgage and, hopefully, your parents’ loan.
Please call us on 1300 889 743 or fill in our online enquiry form to discuss your situation with one of our mortgage brokers.
We cannot provide legal or financial advice but we can explain how a borrowed deposit home loan works so you can make an informed decision.
Is there a cheaper option than using a solicitor?
Although we still advise getting legal advice, you can set up an agreement using credi.com and other online platforms.
Platforms like credi.com also ensure that you’re on top of your repayments because you’re sent notifications when your repayments have cleared, have failed to go through and they’re overdue.
Credi.com charges a one off $10 account-keeping fee and a monthly $3.99 management fee which you start paying once you and your parents e-sign the agreement.
It’s charged for the life of the loan but you can stop and start the service at any time.
Can my parents charge interest?
Yes, your parents can charge interest on the amount they lend to you for your deposit.
Depending on the agreement you make with them, your loan can be for principal and interest (P&I) payments or you could pay interest only payments for the first few years.
You can also agree on the loan term.
It’s easiest to manage the loan if you make P&I repayments on a fixed rate for the life of the private loan.
Use this repayment schedule calculator!
Want an idea of your repayment schedule based on the loan amount, loan term and the agreed interest charged on the borrowed deposit?
Try this private loan repayment calculator.
Disclaimer: This is a guide only and you should refer to the solicitor that drafted your loan agreement to ensure that your repayments are correctly calculated.
For example, fortnightly repayments aren’t exactly half the size of a monthly repayment.
Repaying the loan
Although your first priority is your mortgage, you should make regular repayments to repay the deposit you borrowed from your parents.
Luckily, in many cases, your property will increase in value over time so your mortgage can be refinanced to pay out the private loan from your family.
We’ll need a repayment conduct letter from your solicitor showing that you’ve been making your repayments in full and on time in order to get you approved for refinance.
Of course, not all lenders will approve this so it’s best to speak with a mortgage broker so we can find a lender that will.
Do you need our help?
Please call 1300 889 743 or complete our free assessment form to discover if you qualify for a borrowed deposit home loan.