Help from Family for First Time Home Buyers

Your family could hold the key to your home.

Most lenders are now offering an easier way for first-time home buyers to get on the property ladder. You can leverage off your family members’ home equity to get to the required 20% deposit.

For some time now banks have required a 20% deposit from first-time buyers. However the deposit doesn’t have to be completely savings based, which is usually a struggle for many young people with rising house prices.

Deposit funds can come from:

• Savings
• Gifts
• KiwiSaver
• First home buyer’s subsidy
• Equity from a family member’s home.

When looking at loan applications banks will also consider the following:

• Loan affordability
• Level of existing consumer debt
• Credit history
• Age of parents or family member
• Whether the property used is an owner occupied property or rental
• Location of the property

The beauty of this initiative is that your family does not have to give ‘cash’ up front, they simply use the equity they have in their home to help you get a foot in the door. They are also not required to make mortgage repayments; that’s up to the First Home Buyer.

So how does receiving help from family work?

If you want to buy a house that is on the market for $400,000, but you only have $20,000 saved, this house is currently out of reach for you.

However, if your family can help, the mortgage can be structured in such a way that you have two separate loans. Your standard home loan and then another loan that is shared with your family, using their equity. See picture below: 
     
In the example above I have shown a way of paying the equity part of the loan off at an accelerated rate, in this case over 10 years. If you find that this is too expensive then the repayments can be reduced by paying the equity part over 30 years.