What happens when you don’t have the initial deposit to get a traditional mortgage or home credit for a new house in Australia?

No need to find out, since with a bit of help from your family, you could always apply for a gifted deposit home loan.

Find out all about it below!

What Is a Gifted Deposit?

When your close family helps you with a cash gift to put towards the initial funds needed to get a home loan, you are accepting what is known as a gifted deposit.

However, while you can use this gifted money to apply for a home credit product, you will still have to provide proof of origin of the deposit (such as a detailed ‘gift letter’). That way, lenders understand you are not taking on a financial obligation you must repay later.

Moreover, you will still be subject to the customary home loan requirements like proof of income and a good credit score as evidence of your capacity to pay back the loan.

Note: Learn more about the criteria for getting a home loan in this thorough guide.

Who Is Qualified to Gift a Deposit?

In most cases, lending institutions will accept a gifted deposit from your closest relatives, such as your parents, grandparents, siblings, aunts, uncles, or first cousins. 

However, if distant relatives or non-blood-related family members are ready to help you with that, banks will ask you to explain the relationship before approving the loan.

So if you wonder: “Who can’t I receive a gift from?”, friends, business partners, or other third parties gifting money in Australia to home loan buyers is an unacceptable option.

Finally, the gifting party decides the amount you get, and they can choose to cover the full deposit amount or a smaller portion. However, if you contribute your savings and hire a mortgage broker, you will significantly improve your chances of getting the loan.

Pros & Cons of Gifted Deposit Home Loans

Using gifted money to apply for a home loan with an Aussie lender sounds like a good idea thanks to its apparent benefits, but it does come with some drawbacks as well:

Did you know: Half of the Aussies between 30 and 34 years of age own a home?

Even if getting a gifted deposit home loan is quicker than traditional loans, you will still get the same interest rates, which will vary based on the size of the initial deposit. 

PROS:

  • No legal obligations to repay the deposit;No need to secure savings from other sources;Helps you avoid the costly lenders’ mortgage insurance;Faster approval process with less paperwork.

CONS:

  • You might have to complement the deposit with genuine savings;You still have to demonstrate you can repay the loan in time;You may be putting your family in financial hardship;You may feel you owe a favour or are otherwise indebted to your family.

Also, you will have to get lenders’ mortgage insurance if your gifted deposit is less than 20% of the total property purchase price, as you will be considered a risky loanee.

Note: If you cannot obtain a gifted deposit, there are other ways of saving for your initial sum needed for a loan, even if you are renting!

Gifted Deposit vs Guarantor Home Loan

If your family cannot help you out with a gifted deposit, they may be able to step in as guarantors by using their existing home’s equity as a security for the loan.

However, these two types of products serve different purposes, as compared below:

Note: Instead of using the gifted amount to apply for a home loan, you can apply it towards getting credit for investing in Australian property.

Bottom Line

After weighing the pros and cons of money gifts when applying for a loan in Australia, are you willing to get your house deposit amount from the “Mom & Dad Bank”? If you really can’t scrounge up the cash, you might as well, as we all need a little push to achieve our goals.

Yes, definitely. However, you may be asked to provide proof of origin for the gifted deposit, so the loaner rests assured that you will not be required to pay it back down the line.

2. How much can I borrow?

Depending on the bank’s lending rules and policies and your available deposit sum, you may be able to borrow between 80% to 95% of the total property value.

3. Who can’t I receive a gift from?

Typically, lending institutions do not accept gifted deposits given to you by people outside your close family circle, such as friends, business associates, or other third parties.

4. What are the benefits of a gifted deposit?

The main advantage of a gifted deposit home loan is that you won’t have to look for other income sources for your initial deposit sum or be legally obliged to pay it back.