Family Pledge Loans – A stress-free way for parents to help their kids into the property market.
Entering the property market is no easy feat for a first homebuyer, however, there has never been a better time for them to try with numerous government incentives on offer.
Obviously, there are several ways parents can assist with their child’s access to a property purchase, however we like to recommend a Family Pledge loan.
Here are some of the benefits of this particular loan:
- The total borrowing can equal up to 105% of the property’s purchase price (to cover other costs like stamp duty, title transfer fees and legal fees)
- The borrower must demonstrate servicing for the total loan amount
- The parents do not need to demonstrate servicing, just sufficient equity in their property
- The pledge property does not need to be unencumbered, as long as the existing loan limit plus the pledge amount totals less than 80% of the pledge property value
- The loan secured over the parents’ property is limited to the difference between the total loan for the property purchase and 80% of the new property’s value. This security can be released as soon as that portion of the loan is repaid in full or the new property’s value is sufficient that the pledge is no longer required.
- The parents’ are only liable for the outstanding pledge amount, if the borrower was to default on the loan – the Lender will recover majority of the outstanding loan balance from the security property, before seeking any remaining balance under the parents’ pledge.
The parents will need to be in a reasonably strong financial position and have enough equity in their property to support the pledge amount.
It’s no secret that it can take a long time to save for a deposit and by providing this pledge, you offer the borrower the chance to enter the property market sooner.
Lenders will treat the loan as an 80 per cent lend (80% LVR), so the costly lender’s mortgage insurance (LMI) is avoided. Also, the borrower will not have to save up for a full deposit for the purchase, or sometimes any deposit at all.
We have helped many First Home Owners into their first home with their parents’ assistance using this type of loan over the past few years so if you like to find out more please call me on 0409 02 99 22 at any time or if you prefer email greg@onyx.net.au.
We can also advise you more about the various government incentives on offer.