In recent weeks we’ve seen some announcements by both the Federal and State Governments that will help first home buyers purchase a home.
These announcements are designed to ensure the first home buyer’s deposit is put towards the purchase of the home and not lost in taxes and duties. But what if a first home buyer is still struggling to save a deposit or has to pay mortgage insurance?
Many parents are often willing to assist their children buy their first home, but don’t always have the funds available to help as their own wealth is tied up in the family home.
One way to unlock this wealth without having the funds is to provide a family guarantee.
As an example if the first home buyer has saved $50,000 and is looking to buy a house worth $600,000, they would have to pay mortgage insurance, which can add thousands of dollars to the cost. In this instance the interest rate they would have to pay would also be higher than if mortgage insurance wasn’t applicable.
If their parents have a house worth $800,000 and a loan of $200,000, their parents could provide a guarantee secured by their own home, effectively unlocking the wealth in their home and avoid mortgage insurance for the first home buyer. This would also enable the first home buyer to obtain a more competitive interest rate for their loan.
The first home buyer still has to be able to afford the loan and demonstrate repayment capacity, but the family guarantee may be the final ingredient in ensuring that first home is purchased.
This can be quite complex, and the person providing the guarantee will need to seek independent legal advice, but it can be a very good way to provide the assistance many parents want to give to their children.