The Bank of Mum and Dad
How to buy your first home with no cash deposit using parents’ home as security
Table of Contents
Let’s start with understanding your options
Gifting
Gifting is the simplest option where it is made up mostly of your parents’ savings
or a form of fund coming from your parents to cover for your house deposit. This
option comes with no expectations or repayment, no claims on the purchased
asset and ultimately no liability if the mortgage repayments fail. We can facilitate a top-up on the mortgage if need be
The Deed of acknowledgement of debt
This is simply saying that the parents are lending money and a contract is written to layout the terms of repayment. Similarly, this option, also tells us that Mum and Dad are not responsible guarantors for the home loan. We can facilitate a top-up on the mortgage if need be.
The Guarantor
This option provides a more feasible solution where Mum and Dad will also take part in the mortgage by using a portion of their home equity as guarantee. This means that the bank will have the security that they can get their money back through both properties when unexpected things happen.
We like to mitigate risk as follows
The first minimum payments interest only. The second is a 7-10 Year term to ‘free & clear’ mum and dad.
Take out adequate life, trauma, and income protection insurances
Remember, if you can’t pay the mortgage, mum and dad are only liable for the smaller guarantee loan only.
In all likelihood the way prices are going, we can refinance mortgage in 2 – 3 years time and remove mum and dad as guarantors
