Home Loan Rate – Australia

Significant numbers of first home buyers get their foot into the property market buying buying a property off of their parents or a family member. If the parents have several investment properties then they may even choose to sell the property to their son or daughter for less than its market value.

By selling it below what it is worth, they are giving their children a huge head-start in life. No longer do they need to go through the struggle of saving a large deposit before they buy a home.

Benefits of buying off your family

There are several major benefits of buying a home from your family:

• You can often buy the property below value.
• Your parents may offer you “vendor finance” or other favourable sale terms.
• Your parents do not need to hire a real estate agent & so will save on sale commissions.
• You may be able to reduce your conveyancing costs by using the same conveyancer (note: there may be conflict of interest issues).
• You can often borrow 100% of the purchase price if you are buying the property below its market value (see below).
• You can move the settlement date to suit your needs, e.g. to match when your current lease expires.
• You will be aware of any possible issues with the property.

Overall purchasing a property from your family is financially a very good decision when compared to buying off of a stranger. However if your family relationships may be strained by the process of buying a house then it may be better for you to consider other options instead.

How do you arrange the contracts?

In some states of Australia you will not need to create a Contract of Sale (COS). A signed transfer is all that is required. You can approach a conveyancer or solicitor and they will help you to make the legal arrangements.

Overall it is quite simple to do, once your conveyancer has given you the ok to proceed then it is time to speak to a mortgage broker about arranging the finance.

How to finance your purchase

Applying for a home loan to buy a property from a parent is quite different to buying a property from a stranger. There are several major differences:

• The bank will always value the property.
• The bank may ask you or your conveyancer to confirm the full details of the sale.
• The lender may use policies similar to those that they use for when people have a gift as a deposit.

The qualifying criteria for a mortgage are also different to those of a normal home loan:

• You can borrow up to 95% of the valuation as long as you have 5% in genuine savings and that the loan does not exceed 105% of the purchase price.
• You can borrow up to 90% of the valuation without any savings as long as your loan does not exceed 105% of the purchase price.
• Many lenders will not allow you to borrow over 80% of the valuation unless you have savings of your own.

You can consider using a specialist mortgage broker such as the Home Loan Experts who specialise in helping people to get a family purchase home loan. They can assist you to choose a lender that allows you to buy below the market value and borrow 100% of the purchase price.