I’m often asked “can my parents help me to get a home loan?”
The good news is that the banks generally have this option available. But it depends on how exactly you are intending for them to assist you and whether you meet their lending criteria.
Your parents (or other family in some cases) can provide a guarantee for a portion of the home loan that’s in your name for the property you are purchasing. In fact, this portion of the home loan will have both your names and your parents’ names attached to it as multi-party borrower.
This guarantee would be supported by property that they own. And the aim would be to pay this portion of the home loan off first so that your parents guarantee can be released as soon as possible.
Parent-assisted lending is a way to increase the total equity that goes into the transaction. For example, if you are buying a $1,000,000 property and you have a $100,000 deposit, that would be a 90% Loan to Value Ratio (“LVR”) which comes with tougher lending criteria. But if your parents provide a guarantee of $100,000 from their property, this increases total equity to $200,000 and reduces the LVR to 80% which attracts more favourable lending criteria.
So, parent-assisted lending is a great option for achieving home ownership when you have less than 20% deposit available.
Parent-assisted lending is NOT something that be used to mitigate any affordability shortfall. You as the primary borrower need to be able to demonstrate you can afford the full home loan amount, including the part guaranteed by your parents.
So, parent-assisted lending is useful for accessing equity, but not for improving your affordability equation.
There are other criteria that apply – so happy to answer any further questions on this.