Is it possible to borrow money from family for a mortgage?

If you’re struggling to put together a deposit worth thousands of dollars for a home loan, a family member could help by contributing a portion of the deposit. For instance, it’s not uncommon for parents to help their children get on the property ladder by giving them a lump sum amount to meet the minimum deposit criteria for a home loan. There are several other ways in which you can borrow money from your family for a mortgage. 

Gifted deposits

Your parents could give you a lump sum of money to help you put down a 20 per cent deposit for a home loan. This is known as a gifted deposit, and most lenders will accept it as part of your down payment. Still, the paperwork required may be different for different lenders. 

For instance, some lenders may require you to keep the gifted deposit in your account for at least three months before approving your home loan application. Most lenders also require you to demonstrate at least five per cent genuine savings towards your deposit. The remaining 15 per cent can be gifted by a close family member, such as your parents, grandparents or even siblings in some cases.

If you’re using gifted money as part of your deposit, it’s essential to have a declaration signed by your parents (or whoever has gifted you the money) stating the purpose of the gift. The declaration must expressly mention that the money is gifted, which means there’s no expectation that you are required to repay it.

It may be helpful to speak with a broker, or check with individual lenders for their specific requirements, regarding a gifted deposit to get your paperwork in order before applying for a home loan.

Having a family member guarantee a part of your home loan

If you don’t want to directly borrow money from your family for a mortgage, you may consider a family security guarantee. Instead of gifting you a lump sum amount of money, your parents may use the equity in their home to secure your deposit. 

It’s not even necessary for your parents to guarantee the full amount of your mortgage, as some lenders will allow the guarantee to be limited to a specific amount. This means you can release the guarantee property from the mortgage once you’ve built sufficient equity in your home. However, it’s advisable for both you and your parents to seek independent legal and financial advice before entering into such an agreement, as there’s always the risk of your parents losing their property if you default on the loan.

Buying a home together with your family

It’s not uncommon for family members to pool their resources and purchase a house together. Buying together can reduce the initial financial burden for all parties involved and make it easier to fund a larger deposit. However, it’s essential to work out the proper mortgage structure to prevent any trouble in the future. 

Many lenders allow you to take out a single mortgage with multiple borrowers. However, you can choose to share the mortgage as joint tenants or as tenants in common. As joint tenants, all partners are equally responsible for the mortgage. They also share the property equally. In case one owner passes away, their share automatically goes to the surviving partners. This arrangement is often preferred by couples, or parents buying a home with their children. 

The other option is a tenants in common arrangement where members can choose to divide the mortgage according to their share. Tenants in common are free to sell their share of the property or gift it to someone. You may choose to buy a house with your parents as tenants in common with an agreement to buy out their share in the future.

Taking a loan from your family members

If you’re struggling to save a deposit, you may borrow money from your parents to secure your first mortgage. The loan may be payable on demand, or your parents may ask you to repay them a small amount each month. The exact terms and conditions of the loan will be defined by the loan agreement, which will require the assistance of a solicitor. 

If you’re considering this arrangement, it may be worth understanding the legal and financial implications of the loan before going ahead with it. The process may be longer and a little more cumbersome than using a gifted deposit, but it’s only fair for your parents to be able to recall the money in case they face financial hardship in the future. It may also help to speak with a broker to find out about other options, such as parent assist home loans, that allow parents to provide their child with a home loan deposit of from five to 20 per cent of the purchase price for their first home, to be repaid with interest.

It’s also possible that your parents don’t have surplus cash or enough equity to help you purchase a home. But even if your parents are not able to help you financially, you may be able to stay with them at their place rent-free in order to grow your deposit faster. It’s also worth checking your eligibility for various government property buyer schemes that could help you get into your first home sooner. 

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