Can your parents help out?
No deposit home loans are no longer available in Australia and most banks today will only consider home loan applications if you have at least 5-10% in genuine savings.
One of the more popular ways to avoid the genuine savings requirement is to ask your parents if they can gift you the money for the deposit.
How much can I borrow?
If your parents or someone else can gift you a deposit, some banks will actually allow you to borrow up to 95% of the property value with no genuine savings.
Do you know someone who can help you out with a gifted deposit?
Speak with one of our gifted deposit specialists on 1300 889 743 or complete our free assessment form and we can tell you if you qualify within 24 hours!
How do gifted deposit home loans work?
If they’re happy to, your parents can actually gift you the money for the deposit to buy a property.
Your parents can gift you the money they have in their savings account, through the sale of assets, such as a car, or an inheritance.
The banks usually require parents to evidence that the money is a gift and not a loan that needs to be repaid. A gift letter that is signed by your parents will suffice as proof of this with most lenders.
Some lenders may also have additional requirements such as requiring the funds from the gift to be in your account before you apply.
It really depends upon which lender you apply with so call us on 1300 889 743 or complete our free assessment form to speak with one of our gifted deposit specialists.
Why choose a gifted deposit home loan?
Gifted deposit home loans have several benefits for you as the borrower:
- You don’t need to save a deposit.
- You don’t need to wait three months to show your genuine savings.
- You can evidence your gifted deposit with just a gift letter, which we can give you to make it easy for both you and your parents!
Who can I receive a gift from?
Lenders have strict criteria regarding gifted deposit and will only accept a gift that comes from your parents. This isn’t a hard and fast rule though.
If members of your immediate family such as your brother or sister, your grandparents or your spouse provide you with a gift, it is usually accepted after looking at your case.
On the other hand, if someone in your extended family, such as your uncle, aunt or cousin is gifting you a deposit, the banks will assess the closeness of your relationship with them and you may be required to provide an explanation of your situation to the bank.
For example, if your uncle wants to gift you some money, the banks usually want to see some evidence of your relationship. For example, if you’ve lived with him for some time then that can work in your favour in your application.
Who can’t I receive a gift from?
If your friends, colleagues or any other third party agree to gift you a deposit, most banks may not accept it.
This is because lenders want to avoid the case of fraud as much as possible. When a third party other than your immediate family member is involved, then it is quite possible that this person may not have gifted you the money for the deposit, but lent you the money instead.
If you’re in a situation like this, please give us a call on 1300 889 743 and or complete our free assessment form we can help you find a lender who will accept it.
Do I have to pay a higher interest rate?
Most lenders offer the same competitive interest rates on a gifted deposit home loan as they do on normal home loans. This means that you can borrow up to 95% LVR with a gifted deposit and still get a great rate.
How much Lenders Mortgage Insurance (LMI) do I have to pay?
You usually need to pay Lenders Mortgage Insurance (LMI) if you borrow more than 80% of the property value.
It protects the lenders in case you default on the loan. The more you borrow, the more riskier the loan becomes for the lender, and the more you have to pay in LMI.
However, the good news is that many lenders will allow you to capitalise LMI. This means that you can add the LMI premium to the top of your loan, and a single penny doesn’t have to come out of your pocket.
For example, if you’re taking out a loan of $370,000 on a $400,000 property, you may have to pay at least $10,000 in LMI. If you add this amount to the top of your loan, then it will bring your loan to $380,000.
Capitalising your LMI allows you to borrow with a smaller deposit, because you don’t have to pay for the LMI from the gifted deposit.
Our mortgage brokers have in-depth knowledge about Lenders Mortgage Insurers and the guidelines that they use to assess loan applications.
Please call us on 1300 889 743 or complete our free assessment form to discuss your situation with a mortgage broker.
Don’t forget about the grant for first home buyers!
If you’re a first home buyer and buying a new dwelling then it is likely that you’ll be eligible for the First Home Owner’s Grant (FHOG).
For example, if you’re buying a new dwelling in Sydney worth $500,000 and are planning to take out a loan of $450,000 then you may be eligible for a grant up to $15,000.
The policy for first home owner’s grant is different in every state. You can check out our First Home Owners Grant Calculator to find out what’s available in yours.
You can apply for FHOG through your bank when you apply for a loan. These funds will be advanced with your loan at settlement.
If you’re building, rather than buying a new property, then you may still be eligible for a grant. However, you will receive the grant only after your construction gets under way.
Chris wants to buy his first home but doesn’t have any savings. He has found a home with a purchase price of $400,000.
His parents have offered to gift him an amount of $30,000 to help him out. This is a non-refundable gift and Chris doesn’t have to pay this back to his parents.
They sign a statutory declaration confirming this as evidence which is submitted to the lender with his home loan application.
He is also a first home buyer and is entitled to a $10,000 FHOG through his state government of Victoria because he’s buying a newly-built property.
The total government fees, including stamp duty, transfer fee and registration fee add up to $10,000 approximately, bringing his home loan to $370,000 or 92.5% (LVR).
After crossing the 80% mark, most lenders charge what is known as Lenders Mortgage Insurance (LMI), a one-off fee payable by the borrower to protect the bank in the event that you default on your mortgage.
Luckily, Chris can capitalise the cost of LMI and save thousands of dollars upfront.
Best of all, by asking his parents to gift him the deposit, Chris was able to get into the property market sooner by not having to save a deposit.
What if a gifted deposit doesn’t work for me?
If your parents don’t feel comfortable in lending you a cash deposit, there are mutual benefits when it comes to a parent assist home loan.
Alternatively, you may want to consider a guarantor loan option.
For more non genuine savings solutions, check out this page.
First home buyer insights
In early 2016, the Genworth Homebuyer Confidence Index found that around 15% of first home buyers (FHBs) in Australia would consider abandoning their immediate plans to enter the property market.
The biggest challenge in entering the property market were high property prices and the difficulty in saving a large enough deposit.
To date, around 66% of FHBs are now using sources other than savings as their deposit, up from 43% in 2009. This includes gifts from parents.
A September 2017 survey of first home buyers found that parents are the biggest lenders in Australia (outside of the big 4 banks) with around $65 billion lent to their kids.
This figure not only takes into account gifted deposits but also guarantor security, assisting with repayments after the loan is approved and buying a property outright on a child’s behalf.
Overall though, providing a gifted deposit was the most popular option by far at 41% of respondents in the Mozo survey.
How do I apply for a gifted deposit mortgage?
Our mortgage brokers are gifted deposit home loan specialists and they understand the lending policy regarding gifted deposits.
You can avoid getting knocked back by the wrong lenders time and time again!
Please call us on 1300 889 743 or fill in our free assessment form to find out how we can help you qualify for a gifted deposit home loan.
Keep in mind, if a gifted deposit doesn’t work for your situation and needs, there are other no deposit home loan options available.