Get into the property market by buying a home together
A family mortgage can benefit both children and their parents either get into or stay in the property market.
Benefits of a family mortgage
After the Global Financial Crisis, several no deposit loans were withdrawn from the mortgage industry in Australia.
Family mortgage are still available though and there are a number of benefits:
- You don’t need a deposit.
- You usually don’t need to pay LMI (Lenders Mortgage Insurance).
- Some lenders offer discounted interest rates.
- You can consolidate minor debts such as personal loans and credit card.
- You can limit the size of your guarantee.
You can speak with one of our mortgage brokers who specialise in family mortgages on 1300 889 743 or by completing our free online assessment form.
How are family mortgages structured?
There are a number of ways a family can buy a home or investment property together.
For instance, a son or daughter buying a house with the help of their parents, an elderly couple buying a home with the help of their son or daughter and so on.
Each situation has a unique structure and is viewed differently by different lenders.
Parents buying a home for their adult child
Parents often help their adult child buy a property if their child is still a student or is just starting out. They do this by providing their property to the lender as a guarantee for the loan.
This is commonly known as a guarantor home loan.
Ultimately, the parents will be liable if their son or daughter can’t meet their home loan obligations. They will have to either pay off the loan in their child’s place or sell their property entirely.
With a guarantor loan, you can borrow 100% of the property price plus an additional 5% to 10% for associated costs such as legal fees and stamp duty.
Adult children buying a home for their parents
Lenders often tend to restrict the borrowing power of mature borrowers.
For example, if you’re over the age of 40 then the lender may lower your loan term. This is done to make sure that you’ll repay the home loan before you reach the standard retirement age of 65.
If you’re over the age of 50 then it may almost be impossible to get a loan approval. You will be required to provide extensive home loan documents and an exit strategy to show that you can repay the loan before you retire.
In this situation, you can ask your adult children to help you buy a home or investment. This works similar to a guarantor loan.
The adult children place their property as a security or guarantee for your mortgage. They will ultimately be liable if you default on your home loan and will have to pay off your mortgage for you.
This gives you a better chance to get approval for a home loan.
A family buying a home together
Some lenders allow families to buy a home or investment property together.
In this situation, the parents often provide equity from their property or provide the deposit and the children provide their income to cover the repayments.
The loan can also be split into multiple accounts and each member can make their own repayments in their respective accounts.
These structures can be used with other members of the family as well. Call us on 1300 889 743 or fill in our free online assessment form for more information on how you can borrow together with your family.
Who can I buy with?
Most banks will only allow you to buy a property with your parents.
Some banks may consider immediate family members such as siblings, grandparents, uncles, aunts, spouses and de facto partners. Friends, workmates and associates aren’t normally accept by the banks.
You’ll need to meet additional lending requirement if you’re looking to buy a home with someone other than your parents.
What is limited guarantee?
You can use a limited guarantee to reduce the risk faced by your guarantors for your home loan. With a limited guarantee, they are only liable for a part of your home loan.
To calculate this, you need to know how much you want to borrow and the property price. You can then calculate your limited guarantee with the formula:
Size of the limited guarantee = (total loan amount / 0.8) – property price
Keep in mind that this formula is to work out how much limited guarantee you will need to keep your total LVR at 80%. You’ll also need to make sure that your guarantor at least has enough equity to cover the calculated amount.
You can use our Guarantor Loan Calculator as a guide to work this out.
You can also call our brokers who specialise in guarantor loans on 1300 889 743 or fill in our free online assessment form and they can do the calculations for you.