With house prices rising across the country, figuring out how to buy a home if you don’t have a full deposit is becoming a serious issue for young buyers.
However, there are alternatives to coming up with the traditional 10 to 20 per cent home deposit that many lenders require. Take a look at some of your options:
The ‘Bank of Mum and Dad’
More and more young Aussies are turning to their parents for help in buying property. It’s often necessary to have the help of someone established to get the loan you need.
Parents can help in two major ways:
1. Providing the funds:
If you’re lucky, your parents will be able to give you the deposit you need to buy a home. If your parents have the means and ability to provide you with enough for a deposit, consider yourself lucky and accept the help. It may be your best chance to get your foot in the door.
Be aware that some lenders won’t approve a loan if the entire deposit is coming from your parents. They may ask for additional evidence that you are capable of saving money and staying on top of your debts so don’t abandon your savings plan just because your parents will be helping you out.
Be clear with your folks about the conditions of this ‘donation’. Are they expecting to be part-owners in your home or will they want the money back with interest?
2. Guarantor:
If your parents don’t have the cash or aren’t willing to part with enough to cover a deposit, you can still ask them to be your guarantor. This means that they promise to repay your debt if you can’t. This is one of the best ways to get a loan with no cash down and avoids the awkwardness of needing a huge lump sum from your family.
It doesn’t have to be mum or dad who act as guarantor. Any friend or family member with the means can do this for you although you should carefully consider the possible ramifications to your relationship before you ask for such a favour.
Team up
Friends and family can buy property together as a way to enter the market and either live in it together, rent it out or come to another arrangement. This means you can collectively reach your deposit goals sooner.
Make sure to work out all the details in advance so you are clear on who is spending what money, how repayments will be handled and what happens if someone wants to sell or pull out of the agreement. Have an agent or lawyer help you get everything down on paper in a formal contract so you know who is paying what for what and when.
Find low or no deposit loans
There are options available from many lenders for no deposit or low deposit loans. Do some research online and see what you can find. Be careful though; these sorts of loans often come with higher interest rates and fees. Make sure to work with a reputable lending specialist who can help you to find a loan that works for you.
Talk to a real estate agent
For more advice on how to buy a home if you don’t have a full deposit, find a local agent and have a chat about your options. They can share some ideas and introduce you to an expert who can give you more specific advice.
