Buy Your Parents' Property

What Is A Favourable Purchase?

A favourable purchase is when you buy a property for less than its market value, usually from a family member like your parents.

This type of arrangement allows the difference between the market value and the purchase price to serve as equity, which may reduce the deposit you need and make it easier to qualify for a home loan.

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

• 90% of the property value: No genuine savings required.
• 95% of the property value: LMI applies and you must show that you have at least 5% in genuine savings.
• 100% loans: Available with some of our lenders if you have a guarantor.

Give us a call on 1300 889 743 or fill in our free assessment form and discover if you qualify!

What Are The Benefits Of Buying Your Parents’ Home?

If your parents are reaching the retirement age or they’re in a good financial position and own several investment properties already, a favourable purchase is a good option because:

• You can buy the property below market value.
• You may avoid the cost of LMI: This will depend on the ratio of your loan to the value of the property (LVR). If you’re only borrowing 80% of the market value, you can avoid LMI. Any more and this cost will apply.
• It puts money in your parent’s pocket: You could be purchasing the property prior to your parent’s retirement and paying off the mortgage for them. By the time they retire, you’ll likely have paid off most of the remaining mortgage off and you can either use the house as an investment property or move into the home yourself.
• No real estate agent is required: Your parents save even more money.
• No Contract of Sale is required: Although it’s not a requirement, it’s still advisable that the usual mortgage documents are used including the Contract of Sale and that each party receive separate and independent advice from a solicitor.
• You can avoid a gift tax: You won’t have to pay the tax usually associated with inheriting a property as a gift.
• Instant equity in your property: Depending on how much your parents sell the property to you for, you’ll have equity in your property to use towards another investment property. For example, if your parents sold the property to you for 80% of the market value, you’d have 10% in equity to use for investing.
• You don’t need a second security: Like a guarantor loan, a favourable purchase is a way for parents to help their kids get into the property market. With this arrangement though, mum and dad also get to benefit and they don’t need to put up their house as security for the mortgage.

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

When buying property from your parents, the first thing you need to do is agree on a price. You’ll then need to demonstrate to the lender that the purchase price is less than the market value.

Thanks to the special relationships we have with lenders on our panel, our brokers can do all of this for you by ordering up to three upfront bank valuations and then go with the highest valuation.

The higher the valuation, the less your LVR and the easier it will be to get your loan approved. It also means more equity for you.

By doing an upfront valuation, we can also tell you how much more in additional funds you may require in order to complete the purchase.

Who Can Buy Their Parents’ Property Below Market Value?

Generally speaking, both parties must be related and preferably in a parent-child relationship.

If neither you or the seller (vendor) are related, we may still be able to get you approved anyway.

The banks don’t mind too much if you’re wanting to buy a property market below value! Find out more on our ‘Purchasing A Home Below Market Value’ page.

Call us on 1300 889 743 to find out if you’re in a position to qualify for a favourable purchase home loan.

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

You don’t need a deposit but in some cases, you may need to prove that you have at least 5% in genuine savings.

For example, if the property is valued at $500,000 and your parents sell the property to you for $475,000, you’re borrowing 95% of the property value and you’d need to show that you have at least 5% of $475,000 ($23,750) in a savings account.

At 90% of the property value ($450,000), you won’t need to prove genuine savings. Better yet, if your parents sold the property to you at 80% of the property value ($400,000), you can not only avoid genuine savings but LMI as well.

We specialise in favourable purchase home loans so we may able to get you approved to borrow 105% of the purchase price including stamp duty and legal fees.

Tips When Buying Your Parents' Property Below Market Value

Key things to know when buying your parents’ property below market value:

• Some lenders can use the real property value rather than the purchase price when calculating how much they’ll lend. For example, if the property is worth $1.5 million, some lenders can lend 80% of the property value, i.e. $120,000 even though the (discounted) purchase price is $900,000.
• You pay stamp duty based on the real value regardless of the purchase price. Your conveyancer/ solicitor will organise a stamp duty valuation which is used to show the government the real value.

Talk To A Broker Who Specialises In Family Property Purchases

Our brokers specialise in favourable purchase home loans and can quickly assess your situation.

We’ll help you understand how much you can borrow, whether you need a deposit, if you can avoid LMI, and how to structure the deal correctly so there are no surprises later.

Call 1300 889 743 or complete our free online assessment form to check your eligibility today.