In most cases a deposit of 20% of the purchase price is necessary if you want to avoid paying Lenders Mortgages Insurance. A NAB banker can assist you in understanding how to avoid this cost. In March 2016, the median house price in Australia was $719,024 which means you're looking at $144,000 plus for your deposit. In Saving for your home loan deposit – a case study of a single person, we saw how long it took Alicia, a singleton, to wrangle together her deposit. In Saving for your home loan deposit – a case study of a couple, we saw it was hard work for a Todd and Renima, a young married couple.
This means that buyers have to be smart about getting their deposit together.
Can my family help with my deposit?
Asking family for help isn’t a cop out. Far from it. Getting a loved one to help you out is a common way of buying your first home.
You can ask your family for a gift. Make sure you are all clear on the arrangements for the gift and you explain these to your lender. You’d be surprised at how many parents jump at the opportunity to help their kids buy a home.
What’s a family guarantee?
Your family members can use their own home's equity to provide additional security for your loan under a NAB family guarantee. The guarantee is for a portion of your loan amount, not the whole amount of the loan.
(Family members who can give a NAB family guarantee are parents (including step and in-law), spouse, de-facto, grandparents, siblings, children, brother in law or sister in law, legally appointed guardian.)
This solution reduces your loan to value ratio which can in turn reduce or avoid the need for you to pay Lender’s Mortgage Insurance. (Your loan amount divided by the appraised value of the property.) This can save you a significant amount of money as well as getting you into your new home faster.
What are the advantages of a family guarantee?
The advantage of a NAB family guarantee is that helps you get into your new house sooner by reducing or avoiding LMI without having to have a big deposit. Other benefits include:
- Being able to maximise the amount you can borrow so you can get into your home faster
- Getting a family guarantee doesn’t cost any extra.
- Releasing the guarantee when the guarantor requests this once you’ve reduced the loan amount secured by the guarantee— your family member won’t be liable forever!
If you are interested in a NAB family guarantee, please speak to your NAB banker. They will help to guide you and the family members who may become your guarantor about this option.
What are the disadvantages/pitfalls?
If you have a family guarantee and you end up being unable to make your loan repayments when they are due, then the bank may look to your guarantor (your family member) to pay the guaranteed portion of your loan. It will be really important for your guarantor to get independent financial and legal advice before they enter into their guarantee so that they understand all their obligations and the pitfalls.
Also, the guarantee can’t be released until the guaranteed amount is paid off and the loan is reduced.