Is it possible to borrow money from family for a mortgage?
If you’re having trouble putting together a multi-thousand dollar deposit for a home loan, a family member might be able to help you out with part of the deposit. For example, it is not uncommon for parents to help their children move up the homeownership ladder by paying them a lump sum to meet the minimum deposit criteria for a home loan. There are several other ways to borrow money from your family for a mortgage.
Your parents might give you a lump sum of money to help you pay a 20% down payment for a home loan. This is called a gifted deposit, and most lenders will accept it as part of your down payment. Yet, the required documents may be different for different lenders.
For example, some lenders may require you to hold the deposit in your account for at least three months before approving your home loan application. Most lenders also require that you demonstrate at least 5% real savings on your deposit. The remaining 15% can be donated by a close family member, such as your parents, grandparents, or even siblings in some cases.
If you are using money donated as part of your deposit, it is essential to have a statement signed by your parents (or the person who gave you the money) stating the purpose of the donation. The statement should specifically state that the money is a gift, which means there is no expectation that you will be required to repay it.
It can be helpful to speak with a broker or check with individual lenders for their specific gifted deposit requirements to get your paperwork in order before applying for a home loan.
Have part of your home loan guaranteed by a member of your family
If you don’t want to borrow money directly from your family for a mortgage, you may want to consider a Family Security Guarantee. Instead of offering you a lump sum of money, your parents can use the equity in their home to secure your deposit.
Your parents don’t even have to guarantee the full amount of your mortgage, as some lenders allow the guarantee to be limited to a specific amount. This means you can release the secured property from the mortgage once you have built up enough equity in your home. However, you and your parents are advised to seek independent legal and financial advice before entering into such an agreement, as there is always the risk that your parents will lose their property if you do not repay the loan.
Buying a house with your family
It is not uncommon for family members to pool their resources and buy a house together. Buying together can reduce the initial financial burden for all parties involved and make it easier to fund a larger deposit. However, developing the right mortgage structure is essential to avoid any problems in the future.
Many lenders allow you to take out a single mortgage with multiple borrowers. However, you can choose to split the mortgage into co-owners or co-ownership. As co-tenants, all partners are equally responsible for the mortgage. They also share ownership equally. In the event of the death of an owner, his share automatically reverts to the surviving partners. This arrangement is often preferred by couples or parents buying a home with their children.
The other option is a tenants in common arrangement where members can choose to split the mortgage according to their share. Joint tenants are free to sell their share of the property or give it to someone else. You can choose to buy a house with your parents as joint tenants with an agreement to buy out their share in the future.
Take a loan from your family members
If you’re struggling to save a down payment, you can borrow money from your parents to secure your first mortgage. The loan may be repayable on demand, or your parents may ask you to repay them a small amount each month. The exact terms of the loan will be defined by the loan agreement, which will require the assistance of a notary.
If you are considering this arrangement, it may be worth understanding the legal and financial implications of the loan before pursuing it. The process may be longer and a bit more cumbersome than using a gifted deposit, but it’s fair that your parents can call back the money in case they face financial difficulties in the future. It may also be worth talking to a broker to learn about other options, such as Parenting Assistance Home Loans, which allow parents to provide their child with a 5-20% home loan deposit. the purchase price of their first home. , to be repaid with interest.
It’s also possible that your parents don’t have enough cash or net worth to help you buy a house. But even if your parents aren’t able to support you financially, you may be able to stay with them in their home rent-free to increase your deposit faster. It’s also worth checking your eligibility for various government home-buying programs that could help you get into your first home sooner.