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The dream of owning a home is becoming increasingly difficult for young Australians. With property prices soaring, and wages stagnating, many first-home buyers are struggling to save enough for a deposit let alone qualify for a mortgage. These affordability issues, coupled with the high cost of living and strict lending criteria, are major barriers to entering the property market.

So, the question is:

What can aspiring homeowners do, to overcome these challenges?

In this article, I’ll explain the different ways first home buyers can accept help from family members and/or a friend(s)—and the process you’ll need to follow if this is something you’d like help with.

Here’s what we’ll cover:

1. Solution 1 – Having a family member act as a Guarantor
2. Solution 2 – Buying with someone via a “Joint Home Loan”
3. Solution 3 – Buying with Someone via a “Property Share Home Loan”
4. Helping you implement one of these exciting first home buyer strategies

Solution 1 – Having a family member act as a Guarantor

One effective solution to overcome affordability challenges is to have a family member act as a guarantor. This is also known as a “family equity gift”.

How the guarantor process works:

1. A family member, often a parent, uses their property as collateral for your loan. They do not provide cash but offer the equity in their home as security.
2. The bank assesses the guarantor’s property to ensure it has sufficient equity. If approved, the guarantor’s property becomes part of the loan security.
3. While the guarantor’s property is used as security, they are not responsible for making repayments on your loan. However, if you default, their property could be at risk.
4. Once you’ve built enough equity in your property, you can refinance to release the guarantor from their obligation.

Benefits of this strategy:

• No need for Lenders Mortgage Insurance (LMI): By using a guarantor, you can avoid the additional cost of LMI, which is typically required for high LVR loans.
• No deposit needed: With the guarantor’s support, you can borrow a with a little to no deposit allowing you to purchase a better property quicker.
• Interest rate reduction: Lower LVR often results in more favourable interest rates, reducing your overall loan cost and increasing your borrowing capacity.

Having a guarantor can significantly ease the financial burden of buying a property, making home ownership more accessible.

Considerations:

• Parental equity requirement: Parents need sufficient equity in their property to offer as security, which may not be possible if their property is heavily mortgaged.
• Risk to parents’ property: If the borrower defaults, the parents’ property could be at risk. It’s crucial to maintain regular repayments to avoid this situation.
• Lender policies: Different lenders have varying policies regarding family equity gifts. Some may only offer this option for first-time homebuyers or under specific conditions.
• Legal and financial advice: It’s essential to seek legal and financial advice to understand the implications and ensure all parties are fully informed.

Solution 2 – Buying with someone via a “Joint Home Loan”

Another effective strategy for overcoming affordability issues is purchasing a property with someone through a joint home loan. This approach involves both parties being listed on the loan, allowing them to combine resources and share responsibilities.

How a Joint Home Loan works:

1. Both parties apply for the loan together, providing their combined financial information to the lender.
2. The lender assesses the combined incomes and savings, determining the loan amount based on the total financial picture.
3. Both borrowers are responsible for making the loan repayments. They can set up a joint account for ease of payment management.
4. Both parties are listed on the property title and the loan. This means that they share ownership of the property and the financial responsibilities equally.

Benefits:

• Increased borrowing power: The combined income and savings enhance the ability to secure a larger loan, facilitating the purchase of a more suitable property.
• Shared financial responsibility: The financial burden of repayments is shared, making it easier to manage monthly payments.
• Simplified process: The joint loan structure is accepted by most lenders and involves a streamlined application and approval process.

Considerations:

• Equal responsibility: Both borrowers are equally accountable for the loan repayments. If one party defaults, it affects both credit ratings.
• Deposit discrepancies: If one co-borrower has a smaller deposit, it may lead to a higher loan amount than necessary for the other borrower.
• Financial compatibility: It’s crucial for both parties to have a similar approach to finance and trust each other to manage joint responsibilities effectively.

A joint home loan can be an excellent option for those who have a reliable partner, friend, or sibling to co-purchase with, allowing for increased financial capability and shared homeownership responsibilities.

Solution 3 – Buying with Someone via a “Property Share Home Loan”

A Property Share Home Loan is another viable solution for young buyers looking to enter the property market. This approach allows two parties to purchase a property together while maintaining separate financial responsibilities.

How a Property Share Home Loan works:

1. Both parties apply for their individual loans, providing their financial information to the lender.
2. The lender assesses each application separately, ensuring that both loans are secured against the property.
3. Each borrower is responsible for making repayments on their respective loan. There is no crossover in financial responsibility.
4. Both parties are listed on the property title, but their financial obligations are kept separate.

Benefits:

• Individual financial control: Each co-owner retains control over their loan and repayments, allowing for better personal financial management.
• No shared liability: You are not liable for your co-owner’s loan, reducing the risk to your credit score if they default.
• Flexible deposits: The structure allows for different deposit sizes, making it easier for each party to contribute what they can afford.
• Future purchases: Maintaining separate loans ensures that your financial activities are not linked, allowing for independent future property purchases.

Considerations:

• Limited lender options: Not all lenders offer this type of loan, so finding a suitable lender may require additional effort.
• Shared security: While financial responsibilities are separate, both loans are secured against the property, meaning both parties must maintain their repayments to avoid potential issues.
• Legal agreements: It’s advisable to have a legal agreement in place outlining each party’s responsibilities and the terms of the property share arrangement.

A Property Share Home Loan is ideal for those who want to co-own a property without sharing financial liabilities, offering flexibility and individual control over each party’s financial obligations.

Can we help you implement one of these exciting first-home buyer strategies?

If you’re looking for an expert team (and a broker with premium status) to help you get your home loan approved with the help of a family member or friend, request a Free 30-Minute Finance Strategy Session during which you will…

• Get a better understanding of the lending options available to you, and how your family or friend(s) may be able to help you with one of the abovementioned lending strategies
• Get an up-to-date picture of the lending landscape including rates, conditions, and how to structure your loans
• Learn about our process to find you a loan that you’re eligible for, using the help of a family member or friend
• And more

This no-obligation free session will be held with one of our experienced mortgage brokers.

Please be assured this will not be a thinly disguised sales presentation. On the contrary, you’ll receive our best strategic advice, specific to your situation, so you too can accumulate multiple properties without sacrificing your current lifestyle and accelerate your progress towards wealth.

Schedule Your FREE 30-Minute Finance Strategy Session Today

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Please note, the numbers and assumptions listed in this article are for educational purposes only. Individuals should seek specific advice pertaining to their unique situation and the real estate market before making any decisions.

Trilogy Funding Two is a corporate credit representative (Representative Number 506131) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237)