With prices always moving upward, the amount of deposit required is ever increasing. If you are a first home buyer trying to save a deposit, this means you are chasing a moving target. Its endless frustration!
We have recently helped a few first home buyers overcome this problem.
Here are a few options…..
First home buyers Bob and Tracey spotted their dream home and called us. All they had was a small deposit which was partly a personal loan and partly a gift from a relative. Normally banks would say NO as they had not saved the money themselves. But…because of their good employment record and strong rental history this condition was waived and the loan was approved. They are now happily settled into their own home and look forward to not having to pay anymore dead rent.
IMPORTANT TO NOTE. In this case the small deposit could have come from almost anywhere. A tax refund, a compensation payout, a personal loan, or perhaps a combination of these.
Use of Family Equity
First Home Buyers Ron and Kerrie had no deposit. So they asked Ron’s parents (John and Amanda) to assist with the purchase of their $400,000 home. John and Amanda had almost paid their home off. So they were happy to allow a small loan of $45,000 to be put against their home. John and Amanda wanted this loan to be in Ron and Kerrie’s name, as they did not wish to risk their credit rating if Ron and Kerrie were unable to make repayments.
Another loan of $355,000 was set up against the house Ron and Kerrie were buying.
Ron and Kerrie are happy to have finally escaped the rental trap! And they got a really sharp loan product which means their total home loan repayments are not much more that what they were previously paying in rent.
Some big advantages here:
- Parents John and Amanda only risk $45000 – not their entire house!
- Their credit rating will be not be affected if Ron and Kerrie cannot make repayments as none of the lending is in their names.
- Ron and Kerrie get to move into their first home AND save lots on Lenders Mortgage insurance.
****There are some risks in this strategy. Property prices might drop and the sale of Ron and Kerrie’s home may not be enough to discharge all debt. In this instance the Bank would require John and Amanda to pay the difference. Depending on their circumstances, this could mean hardship for them.