How to buy a house with little (or no) money in the bank
So you want to buy a house but you have no savings ... how are you going to do that?
Normally what happens is that you do your best to save but what if houses go up even faster than you can put a deposit together?
There is a way, but it really depends on your circumstances.
Here is an example of a loan I did last year that demonstrates how to go about it.
I was referred to a couple who had been out walking looking for their lost dog. In their travels they came across a house for sale for $463,000 that they decided they wanted to buy.
They were living at her father's place around the corner having just arrived from living in Queensland and with exactly $3,000 to their name.
They contacted me and we had a conversation about a product known variously as Family Support, Family Pledge or Family Guarantee (depending on the lender).
This is where a family member (usually a parent) has a property which they are willing to put forward as security in addition to the property being purchased.
What then happens is the couple borrow 80% of the purchase price of the new property and borrow 20% plus costs against the security of the parent property.
The benefit in doing this is as follows:
- The couple do not need to have a deposit (in this case the father gave them $30,000 as a deposit which they gave him back out of the proceeds of the 20% loan)
- No Mortgage Insurance premium is payable as neither loan is over 80% of the property values
- There are no valuation problems likely to occur
- Reduced stamp duty is still available for First Home Buyers in these circumstances
- The second loan of 20% plus costs is a limited guarantee on behalf of the parent
- There is no need to have the approximate 5% needed for costs as they are covered by the second loan.
- Once you have settled on the purchase and moved in, you can focus on the second loan and treat that as a repayment priority. That way the parent can see an end to having a mortgage on their house and don't regret the exercise!
Here is what you need to have:
- Sufficient income to repay both loans
- An obliging parent
- Preferrably nothing nasty on your Credit Rating Report
And that is it ....
If you think this sounds like a good idea ... contact me and we can discuss it. I'm also happy to sit down with the parent in question and explain what's involved.