Some family are seriously considering this option for me to buy my first home, just wanted a little further advice on how it works.
This is how I read it:
I want to buy a house for $400,000. My family want to pitch in $40,000 worth of equity in their home. I also pitch in $40,000 cash to total an $80,000 deposit and therefore having a $320,000 mortgage.
Am i completely off the ball? If so, can someone explain it to me in simple terms on what it means.
Cheers
it would work like that if they borrowed the money and lent it to you (or gifted).
If you were to use one of those family equity type loans they would actually be giving their property as security in addition to the security of the property you are buying. So your loan would be $400,000 less your deposit of $40,000.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry. I understand now.
Hi Rafael,
Depending on the lender it could be done in one of two ways.
1st method: There would be a loan just in your name for $320,000 and a 2nd loan for $40,000 in your name that is guaranteed by your family using a mortgage on their property. This method allows you to make repayments to the guaranteed portion first and keep better track of how much you need to repay to remove the guarantee.
2nd method: There would be one loan for $360,000 with a guarantee from your family limited to $40,000. This is effectively the same thing except there is only one loan account.
As a general rule the family member offering the guarantee must have significant equity in their property. Many lenders put restrictions on pensioners being guarantors or do not allow guarantors that are not your parents (aunts, uncles, brothers etc all unacceptable).
Thanks
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