Young homebuyers need parent support
Appeared in Sunday Mail 'Top Tips', 9 April 2017
For young homebuyers, getting a foothold onto the property ladder can be a frustrating time spent saving every spare dollar while watching the price of homes steadily increase from the sidelines.
For parents, it can also mean extra time having to lodge the ‘children’ before they have enough money to leave the nest for the wider world.
But whether it is for a new, established, or to be built home, there are a growing number of young homebuyers calling on parental support to make their dreams come true, via the benefits of a Family Guarantee home loan option.
Get going sooner
A Family Guarantee lets homebuyers with limited savings get into the property market sooner by leveraging equity in their parents’ home to guarantee a portion of a mortgage. Many financial institutions will lend up to 95 per cent of the value of a home, but parents (or other family members) can use the equity in their own home to bridge a gap by guaranteeing a portion of the loan to remove a deposit requirement. Download our guide to learn more.
Look broader afield
See if your financial institution offers a Family Guarantee loan where a parent has a term deposit or an investment property 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 would not be appropriate.
Find the right home
A prospective homebuyer 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 per cent of the value of the property plus other mandatory purchase costs such as stamp duty and legal fees. Please note; borrowers must provide at least 5% of the purchase price from genuine savings, which has been saved regularly over at least three months.
Another benefit is that applicants may avoid or minimize the cost of Lenders’ Mortgage Insurance, which is normally needed where a loan value exceeds 80 per cent of the value of a property, meaning significant savings can be achieved.
The amount to be guaranteed is usually only the portion needed to reach a loan-to-valuation rate below 80 per cent, and the good news is that the guarantee may be able to be released as soon as the mortgage is under 80 per cent of the primary property value.
Limit the risk
While borrowers are responsible for repaying the full amount. Guarantors are only responsible for their part if the borrowers happen to default.
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.