Tips for First Home Buyers: Keeping it in the family – Buying a property with the help of Mum and Dad”
Buying a property, particularly your first home, is likely to be the biggest financial transaction you will ever make. The cost of buying your first home may be out of your budget and with the Reserve Bank maintaining the LVR (Loan to Value Ratio) restrictions, it is becoming harder for younger buyers to get funding to realise their dreams. You might think a viable option is to seek financial assistance from your parents.
Buying your first home with the help of family
However, it is not as easy as Mum and Dad just giving you the cash and going to the bank with your 20% deposit. Is the money being given as a gift? Is the money being given to you as a loan? The bank will be interested in the answers to these questions and that may impact on your ability to borrow money even if your parents are happy to wait to be paid back when you are in a better financial position.
What about a first home deposit that’s a gift?
If the money is intended to be a gift, then we have to ask other questions about the gifting. You may need to consider the effects of the Property (Relationships) Act 1976. Whether you currently have a partner or not, any gift you receive for a deposit on a home, might get caught by the Act if you and your partner separate. Your parents may give you $50,000.00 for the deposit on your first home, but if you and your partner separate in a few years time, your partner may be entitled to half of the gift – possibly against your parents’ wishes.
In such circumstances you and your partner could enter into a Contracting Out agreement under the Property (Relationships) Act 1976. A Contracting Out agreement means that although you recognise that under the Act both you and your partner would share the money given by your parents, you both agree that the money is to remain your sole property, and will not be split in the event of your separation.
Guaranteeing the Bank Loan for your first home
Instead of giving an unconditional gift or a loan, your parents could become the guarantors of your Bank loan. This would mean that your parents are potentially liable if you do not repay your debt to the bank. Your parents might have to mortgage their own home to support their guarantee of your Bank loan. Guarantees like this can often be limited to a specific amount to protect your parents. As the risk to your parents is high your parents will need independent legal advice before agreeing to guarantee your Bank loan.
We are happy to help you organise the best way for you to buy your home with support from your family.