Top tips for young home buyers
For young home buyers, getting a foothold on to the property ladder can be a frustrating time spent saving every spare dollar while watching the price of homes steadily increase.
For parents, it can also mean extra time lodging the ‘children’ before they have enough money to leave the nest for the wider world.
Regardless of whether it is for the purchase of an established home or to build a new home, there are a growing number of young home buyers calling on parental support to make their dreams come true.
1. Get going sooner
A family guarantee enables home buyers with limited savings to get into the property market sooner by leveraging equity in their parent’s property. Many financial institutions will lend up to 95% of the value of a property, but parents (or other family members) can use equity in their own home to bridge any gap by guaranteeing a portion of the loan to reduce a deposit requirement.
2. Cut costs
Another benefit is that applicants may avoid or minimise the cost of Lenders’ Mortgage Insurance, which is normally needed when the loan value exceeds 80% of the value of a property, meaning significant savings can be achieved.
3. Find the right home
A prospective home buyer may be able to borrow more funds than they might have been eligible to borrow without the family guarantee. In fact, borrowers may be able to increase their loan amount to 100% of the value of the property plus other mandatory purchase costs such as stamp duty and legal fees.
4. Look broader afield
See if your financial institution offers a family guarantee where a parent can offer a term investment or an investment property as security instead of using equity in the family home. In addition to parents, some financial institutions will consider other immediate family members – such as in-laws and step-parents - where a parent guarantee is not appropriate.
5. Family flexibility
The amount subject to the guarantee is usually only the portion needed to reach a loan-to-valuation rate below 80%, and the good news is that the guarantee may be able to be released as soon as the loan balance is under 80% of the primary property value.
6. Limit the risk
While borrowers are responsible for repaying the full loan repayment and debt, guarantors are only responsible for the limit of the guarantee if the borrowers happen to default.
7. Spoilt for choice
A family guarantee normally can be used across a range of mortgage options, including discounted, standard, and fixed rate home loans, as well as variable rate and fixed rate home loan packages.
To find out how to leverage the value of your property to assist you or your children call us on (08) 8202 7777 or visit our Member Experience Centre.
INFORMATION YOU SHOULD KNOW
This article is intended as general information only and has been prepared without taking into account the personal financial situation, objectives or needs of the reader. Before acting on this information, you should consider its appropriateness, having regard to your objectives, financial situation and needs. You should always seek professional advice or assistance before making any financial decisions.