Whether you are working extra hours or setting money aside, it can take a long time to save up for a down payment when buying your first home in Adelaide. The good news is that you may not have to come up with all the money by yourself. Gift fund from family members can be used as a house deposit. However, you should know a few criteria and rules to ensure the cash gift adheres to the bank’s policies.
Parents or other family members can support older children by giving funds for a deposit or appearing as a guarantor for their mortgage. We will analyse these two options to understand how helpful they could be for you.
What Is A Gifted Deposit?
It is commonly a “mum and dad” leg up, though gifting funds is not limited only to parents and their kids. Spouse, extended or immediate family members and in some instances, even friends (with plausible reason) can supplement or even entirely cover the needed deposit for a property purchase.
Yet, a gifted deposit mortgage may not be as easy as you think. Lenders possibly ask for proof of where the money has come from. Even some lending institutions will request for a ‘gift letter,’ which asserts that the funds have been given without expectation of repayment and unconditionally.
Even with a gifted deposit, banks still like to see you have established your savings to keep up with mortgage repayments. To satisfy this, you may be asked to show your past rental history.
What About Having A Guarantor Instead?
Gifted funds, in general, eliminate the requirement for a guarantee in most cases. Your parents or a family member can use their home’s equity as security to increase your borrowing amount up to the total purchase price. At the same time, a gifted deposit decreases your final loan amount.
Compared to a standard guarantee, the approval process with a gifted deposit tends to be more accessible. That’s because the lender does not need to consider the gift party’s financial situation and personal details.
Gifted Home Loan Deposit Vs Guarantor
Asking a relative to be a guarantor and gift deposit loans both have their pros and cons. Deciding which is best for your situation is up to you and your family.
Agreeing to be your guarantor means if you can’t keep up the repayments, the bank will turn to your guarantor. Hence, it makes critical for your guarantor to thoughtfully weigh up the responsibility they are taking up and decide if it is worth the risk.
On the other hand, a notable benefit of a gift deposit is the limited liability it puts on your family. If they are comfortable contributing towards your first home, they only need to commit without any condition.