Parent Assist Home Loan
Finding the money to buy a home is always difficult. But you could get a helping hand with a parent assist home loan.
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A parent assist home loan allows parents to help their children purchase a home. This loan type is a far less risky way to do this in comparison to being a guarantor on a child’s home loan. It also allows parents to make a return on their investment, unlike through a gifted deposit.
How does a parent assist home loan work?
A parent assist home loan works just as its name suggest, it allows a parent to assist their child in buying a home. Its a similar options to family pledge loan.
With this type of home loan, a parent will contribute a certain amount to their child’s deposit. This can be done through a cash contribution or through the parent’s equity on their home.
How does a parent contribute in a parent assist home loan?
Parents can contribute to a deposit on a parent assist home loan either through cash or through equity on their own home.
If they elect to contribute cash towards the deposit, it is very similar to a gifted deposit. However, in this case the child will be legally required to pay their parent back at a loan term and interest rate of their discretion.
The parent could instead choose to use equity on their home to contribute to their child’s deposit. This is similar to a guarantor home loan, aside from a few differences:
- The parents are not guaranteeing the child’s loan finances.
- The parents are not legally attached to the loan.
- If the child ceases making repayments on their home loan, the parents will not be affected.
Instead with a parent assist home loan, the parent and child will enter into a legal loan agreement which is separate from the rest of the child’s home loan to pay back the amount that they have given them.
As mentioned, the child will then make repayments on the parent’s loan at a loan term and interest rate that is decided at their own discretion.
Why is a parent’s contribution to a deposit so important?
A parent’s deposit contribution is so important because it can move their child’s LVR preventing them from needing to pay Lender’s Mortgage Insurance (LMI).
LMI is a payment required from borrowers to protect the lender against any financial losses it may receive if a borrower can no longer repay their loan.
Lender’s usually charge LMI when a borrower’s LVR is over 80%. This means that a parent’s contribution to their child’s deposit should aim to put the LVR below 80%, meaning they will not need to pay LMI.
How much can be saved by not paying LMI?
Not paying LMI can save a large amount of money when placing a deposit. LMI rates will change depending on the price of the property and the borrower’s LVR. Check out how much you would need to pay for LMI at a 95% LVR:
| House price | LMI | LMI payment |
|---|---|---|
|
$300,000
|
2.609% |
$7,827 |
|
$500,000 |
3.345% |
$17,250 |
|
$750,000 |
4.603% |
$34,522.50 |
If the parent’s contribution means the LVR is below 80%, their child could make considerable savings as they will not need to pay LMI payments similar to those in the example above.
How to get a Parent Assist Home Loan?
Much like any other home loan, the child will need to have their credit history and ability to make repayments assessed.
They will not only be assessed on their ability to repay the lender, but also to repay their parent.
If the child has a stable job, decent income, good credit history and minimal debt they should be approved.
The child will then need to enter into a legal agreement with the parent which states the loan conditions and repayment schedule.
Would I qualify for the First Home Owner’s Grant?
A parent assist home loan does allow the child to access funds from the First Home Owner’s Grant. However, the applicant (the child) and the property they are looking to purchase must meet a set of criteria on both a national and state level. The national criteria is as follows:
- The property must be the applicant’s first purchase
- All applicant(s) must be above 18 years of age
- The applicant(s) must be either a citizen or permanent resident of Australia
- Must be purchased to be owner occupied, not investment property
Each state and territory has its own set of criteria regarding the First Home Owner’s Grant, get across them here:
| State or Territory | What grant can I get | With what property | Other details |
|---|---|---|---|
|
VIC |
Urban homes - $10,000
Regional homes - $20,000
|
New homes valued up to $750,000 |
Exempt from paying stamp duty on properties worth up to $600,000
Concessions are available for properties valued between $600,001 and $750,000
The extra $10,000 received when purchasing regional homes is valid for contracts signed before 30 June 2021
|
|
NSW |
$10,000 |
A new home valued up to $600,000
A new home valued up to $750,000 if you enter a contract to build
|
Exempt from paying transfer duty on new homes valued up to $800,000
Exempt from paying transfer duty when purchasing vacant land valued up to $400,000
|
|
SA |
$15,000 |
A new home valued up to $575,000 if this home is your place of residence for at least 6 months within a year of settlement |
|
|
QLD |
$15,000 |
Buying or building a new home valued up to $750,000 |
Stamp duty concessions are available (but vary) for properties valued less than $550,000 |
|
WA |
$10,000 |
Homes valued up to $750,000 when south of 26th parallel
Homes valued up to $1,000,000 when north of 26th parallel
|
Stamp duty concessions are available (but vary) for properties valued less than $530,000 |
|
TAS |
$20,000 |
New homes or off the plan properties |
50% discount on property transfer duty |
|
NT |
$10,000 |
New homes |
|
