Are you thinking about buying your First Home, but struggling to get the full deposit together? Your Family might be able to help you make your dream a reality.
I have spoken to so many Frist Home Buyers who are desperate to get their foot into the Property Market, but their deposit, or lack of is stopping them from reaching their goal.
Each appointment I have with a First Home Buyer we always talk about Family Guarantee, what it is and how it works. Almost every time I have this conversation, my client will finish with ‘I’m just not sure my parents will do it’ and so far 80% of these clients go home, talk to their parents and call not long after saying;
“Maryanne I asked my parents, they really want to help me, what’s next?”
The biggest obstacle I find is firstly people don’t like asking their parents for the help and secondly they don’t know how it works so it sounds risky. Don’t get me wrong, there is an element of risk for parents when they go guarantor for you but there are certain things you can do to protect them as much as possible.
So how does Family guarantee work? Your parents use their home (or another property they own) as security in addition to the property you are buying, This means you can borrow up to 100% (in some cases more) or the purchase price of your new home without paying any Lenders Mortgage Insurance.
As I mentioned there are things you can do to protect the guarantor and they are;
Take out Loan Protection
Loan protection covers the loan should something unforseen happen to you. This means if something happens to you, and you are unable to pay your Home Loan repayments, the policy will pay them on your behalf. This means your loan repayments are up to date and therefore the Guarantors are not at risk.
Structure the loan
I always suggest splitting the loan into two. The first loan is in your name only and is for 80% of the purchase price. The second loan is the remaining amount in your name with the Guarantor’s property listed as an additional security. What this means is, should you no longer repay your debit, the guarantors are only responsible for the smaller of the two debts rather than the whole amount.
Stay on top of your repayments
Obviously the risk for a guarantor is when the loan is not paid, the Bank or Lender will repossess the home, sell it as quickly as possible and what ever loan funds are left they will go to the guarantor for payment. So to avoid this happening it’s important you consider the repayments before you agree to the loan and be sure you can afford the loan even if interest rates were to increase. You should also increase your home loan repayments to lower the loan amount as quickly as possible for the guarantors to be removed.
Remove the guarantors as soon as possible
As you pay your home loan off and (in theory) home prices increase over time you will find at some point the value of the property and the amount of your loan are at or under the 80% mark it needs to be to stand alone. At this time you can remove the guarantor and their property from the loan.
Get help straight away
It’s understandable that things can happen, outside your control, that could make meeting your home loan commitments a stretch. The key is, if at any point, you are finding it difficult to make your loan repayments you should speak to your Broker, Bank or Lender straight away. There are options and advice they can offer that can help you get back onto your feet rather than loosing your property and putting your parents at risk as well. Never be ashamed to ask for help.
If you are wanting to save your own deposit, or you’d like to get an idea on how to budget for a new home make sure you check out The First Home Buyer’s Program, it’s an online course which also gives you access to the Facebook community where you can learn everything a First Home Buyer needs to know.
You can also grab a copy of the E Book, Open the door to your First Home, this book is a guide for all First Home Buyer’s from saving for your deposit through to a moving check list.