Often, the hardest thing about buying your first home is saving up for a deposit. When you’re renting, paying bills and trying to live the good life, the thought of having enough left over to put down on a property can seem impossible. But what if saving for a deposit wasn’t as big as a hurdle as you’ve made it out to be in your head? Here’s how you can buy your first home with little to no deposit.
For many of us looking to buy our first home, asking Mum and Dad for a little help getting together a deposit is usually the first thought that comes to mind. In fact, according to research by independent financial consultancy Digital Finance Analytics, the Bank of Mum and Dad has become the ninth biggest home lender in Australia – so it’s safe to say it’s a very popular trend. Here are some of the ways your parents can help you get a leg up:
Gifting a cash deposit
A great way to get you going, but remember you’ll still need to be able to show the bank you satisfy their genuine savings requirements.
Acting as guarantor
Here, your parents are essentially vouching for you by letting the bank know that even though you don’t have much of a deposit, you will be responsible enough to pay the loan repayments – and if you don’t, they’ll be responsible for the repayments on the portion of the loan they guarantee. Of course, there are risks with this strategy. If you default on your loan, your parents will be legally responsible for your repayments, so it’s important everyone is clear on what’s at stake.
The Bank of Mum and Dad has become the ninth biggest home lender in Australia
Draw on their own equity
Your parents may have equity on their own home or investment property they may consider accessing via a redraw facility or re-mortgaging their existing home loan. This equity could then be put towards your deposit via a gift or loan, or they might consider reinvesting it as a co-owner in your first home.
Agreeing to be a co-buyer or “tenants in common” in your home
With this strategy, your parents will be putting their names down to own a portion of the property. By putting your parents down as tenants in common, you can each own a different percentage of the property (so you might own 80% to their 20%) so that in the event that the worst happens and there is a family break-down of some sort, the property doesn’t automatically pass on to the other owner.
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Much like leveraging the Bank of Mum and Dad, a Family Pledge is a special type of loan product that keeps things in the family. This type of loan can help you reduce the deposit you need by maximising the amount you can borrow to 100% of the purchase price of the property, plus costs such as stamp duty and legal fees. It can even help you reduce or avoid costs such as lenders mortgage insurance (LMI) completely.
With a Family Pledge your family nominates a specific amount that they’d like to guarantee. Then, when your property value goes up over time and/or you’ve paid down enough of your loan to have some equity, you can ask to reduce the guarantee or remove it completely from the loan.
While the Bank of Mum and Dad or getting help from family can sometimes work out to be your golden ticket, not everyone is lucky enough to have this support available.
In those situations, there are loan products available which lend 100% of a property purchase price (no deposit needed) to first home buyers and other owner occupiers, without LMI attached. Of course, these loans aren’t available to everyone and there are key qualifying criteria you’ll need to satisfy to apply – but if you have a steady job with a strong earning potential it’s worth speaking to an expert about whether this option is available to you.
Aside from giving you access to property in highly sort after locations at often affordable prices (if you get in early), off the plan property has the added advantage of giving you more time to save a deposit. Many developers are willing to take a lower holding deposit from first home buyers, as long as you’re willing to commit to a savings plan while your home is being built. However, these deals aren’t always advertised to the public, so it’s worth getting to know the right people to access these opportunities.
At First Things First we’ve built relationships with a number of developers to give you access to special negotiated benefits such as a low (or no) up-front deposit on a number of early release apartments, townhouses and house and land options. We’re also here to talk you (and your family) through your home loan options and to help you create and stick to a savings plan that’ll help you grow your deposit faster than you ever thought possible, getting you into your first home before you know it.