How a family member or friend can help me own a home sooner

Often it can be hard to save for a deposit with the ongoing need to make rental payments and cover the cost of living. You may even be starting out again and wishing to get back into your own home, but sometimes it can be a struggle.

There are options available where you can borrow the full purchase price of a home or investment property, even the stamp duty and other purchasing costs can be included.

How it works is, a family member, or even a friend, can help out by offering ‘equity’ in their home or investment property. Equity simple means the value of the home or property minus their current loan, if they have one. If they have equity in their property this can be used to help out with the purchase. They do not need to give you any cash or take out a loan of their own. They do however need to be prepared to offer their property in support of your purchase, this is called going guarantor. The guarantor does not need to support you for the full loan amount, their risk can be limited to a certain value so they are not putting up their entire property. Usually the limit is for no more than 25% of the purchase price of your property.

It doesn’t matter if you are interested in a home or an investment property, both options are OK.

If you can afford to make the loan repayments on your loan it is possible that you can purchase without the need for any savings or deposit. It’s also OK if the person offering their property as guarantor already has a loan.

It is a great way of getting into your home or investment property sooner. As the risk to the bank is usually lowered they are often happy to pass on bigger interest rate discounts. Therefore, you save on the repayments as compared to going it alone. Having someone help as a guarantor is a little more involved, however once everything is set up your loan operates in a very similar way to a ‘standard’ loan.

As a summary of the benefits:

o   Allows you to borrow up to 100% of the purchase price, plus costs such as stamp duty and legal fees

o   No need for savings or a deposit

o   Helps to reduce or avoid the one off Lenders Mortgage Insurance Fee, this can save many thousands of dollars

o   Help to get a better deal via a lower interest rate

o   The guarantor can be asked to be released at any time. Some restrictions may apply and this should be discussed with your broker at the time of application