Many medical professionals are lucky enough to have incredibly supportive parents – the kind that have given them moral and possibly financial support well into their twenties or even thirties! As a result, parents are often the first in line offering to provide the necessary deposit and/or costs that a young doctor needs to get into the property market.
One of the most common roadblocks to getting a loan approval is the deposit so we’ve outlined a few ways you may be able to get your foot in the door – if you’re unable to save a full 20% deposit on your own.
Parents as Guarantors
The #parentalbank is often very generous but it should be handled with care. The most straightforward thing might appear to be approaching the bank that your parents are with and bundling the whole thing together with their existing loans. It might seem easy but can have some unintended consequences and the last thing you want to do is inadvertently put your parents in a position where they could lose their home if something goes very wrong, particularly when it can be avoided.
Let’s look at this practically. Imagine you want to buy a home for $700,000 in Melbourne – generally you’ll need somewhere between $35,000 – $140,000 for the deposit (this is how wide the varying lenders deposit requirements can be!) plus the costs of the transaction such as stamp duty, legals, moving costs etc which we’ll assume to be around $30,000. At the extreme your parents are offering to lend you $170,000 – a pretty generous offer from the folks!
If your intended property and your parents’ property are in any way inter-related on the loan (“cross-collateralised”) a problem with either loan or borrower could ultimately result in both properties being sold. Let’s be honest, in most cases your parents have the most equity after many years of saving so they have the most to lose. However, if you organise the cash injection from your parents in the right way it can be ‘quarantined’ so that the most they stand to lose is the amount they lent you, in this case $170,000.
Remember, the lender will also need to look at your ability to repay this loan so borrowing from your parents might need to be factored into your monthly budget. That is, of course, unless mum and dad want to give you an early Christmas present 🙂
A Family Pledge Loan
A Family Pledge Loan – also called a Guarantor Home Loan – could help you enter the market and can allow your family to help you purchase a property by acting as guarantors, making it possible to open the doors to your dream home sooner. It also means that if you do not have a deposit or sufficient savings to purchase a property, with the support of a family member with equity in their own home, you can. Depending on the equity available you can borrow 100% of the purchase price along with costs like stamp duty – and its all at Residential Rates. You can also avoid the cost of lenders mortgage insurance (LMI) if your deposit doesn’t meet the threshold and you can borrow up to 105% – again all at residential rates.
Unlike the above scenario where your parents would need to act as guarantor on the loan, meaning they are on the title and the mortgage as well, when you get a Family Pledge Loan, you are the only person the title and the mortgage.
With a Family Pledge Loan, your new property would have 80% of the loan secured against it, then your family member tops up the equity with their security to cover the remaining percentage required.
Their property has a limited guarantee, so they can nominate a specific amount rather than guarantee for the entire loan amount. They are not able to guarantee over 50% of the loan amount.
A Family Pledge Loan is also not limited to your parents. It is available to parents, siblings, daughters and sons. This loan type is available for all owner-occupied purchases and first home buyers purchasing an investment property. It is not available to refinance existing home loans.
Not so keen to involve your family
Most doctors (and people in general!) are inherently uncomfortable with borrowing from their parents, or engaging family members in their financial needs.
For Medical, Dental & Vet professionals Credabl can provide an extra 5%-10% loan behind a 90% no LMI home loan. The 90% loan must be applied for with Credabl and may carry additional terms and conditions.
Saving for a home deposit can be slow going, but you’re in the fortunate position as a medical professional to have options, in particular with a lender that specialises in financial solutions just for you.
The Credabl team is available to chat live on our website www.credabl.com.au or you can call one of our specialist lenders on 1300 27 33 22.
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