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A family guarantee can fast track a parent's child into the property market by using the equity in the parent's home (or making an equivalent cash deposit with the Lender as security) to lower the LVR - Loan to value ratio.
This means you can get started with a much smaller deposit and still avoid expensive LMI fees, and potentially access lower interest rates.
Why do people ask Mum & Dad for this type of help? What are the key benefits compared to going it alone?
It's not all one-way traffic. A Family Loan can offer real benefits to the parents.
The guarantor uses equity from their home (or even savings) to guarantee part of their child’s loan. The key benefits for the borrower, are that it can help them enter the property market earlier and with less fees.
Amanda is planning to purchase a $600,000 unit with a $30,000 deposit (LVR of 95%). Mortgage Insurance (LMI) would be payable due to the high LVR . Provided they have equity in their home, Amanda's parents could provide a Parental Guarantee of $90,000 as additional security on the loan, reducing her LVR to 80%.
In this example, it could mean Amanda can avoid paying Lenders Mortgage Insurance, saving her up to $25,707.
With many lenders, lower LVR's can also result in lower interest rates.
Rick's parents wanted to help him get into the property market as prices seemed to be going up faster than his deposit. Only problem was, they refused to put their home up as security.
Rick's parents had $80,000 in savings that they did not require access to, so they deposited it as a term deposit (earning a competitive interest rate) with the Lender providing the loan to their son. This cash deposit was not used as a part of the loan - it was merely acting as the security.
If things somehow went "pear shaped" the only liability the parents had, was the the cash deposit - not their house.
Access information on how the NSW 'new home' First Home Buyer Grants operate. Updated rules apply July 1st 2017
Visit the NSW Government site explaing all the details on the First Home Buyer Stamp Duty concessions
In NSW Stamp Duty for eligible First Home Buyers is abolished on home's up to $650,000, and id discounted on homes up to $800,000.
Click below to download the NSW First Home buyers grant application form
Click to download the NSW Stamp Duty exemption / concession application form
Use your Superannuation to help with your deposit. Find out how. Download fact sheet
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