A Little More About Parental Guarantees

The parental guarantee strategy seem like a risky business when it comes to setting it up.

But you can take the risk out of the equation.

If you follow our First Home Financial Freedom Framework, you’re going to buy a property that goes up in value. You’re going to buy in a growth location, and you might use a few value-adds, such as renovation, to increase the value.

As soon as your property goes up in value enough to cover what your parents paid out, you can get them off the mortgage. and release their property from securing your loan.

That means their property no longer acts as the security on your loan. So they’re no longer at risk if something goes wrong.

In our example, this means you need to raise the property’s value.

That’s where these components come into the equation.

Of course, you still have to service the entire debt over the course of your ownership. But the key is that a parental guarantee isn’t forever.

It’s simply leverage you can use to buy your first property faster.

And with our help, you’ll be out of that property again in two years because you’ve turned it into an investment property.Make a time to discuss your options with our dedicated team today, just book a time here for your complimentary call https://investorschoice.com.au/bookacall

 

What Are Parental Guarantees?

A parental guarantee allows you to use a portion of your parents’ property as the security on your home loan.

That means your parents, for instance for a $500,000 purchase, they will allow $100,000 of their own property to be secured against their own property to cover the deposit without  you having to pay any Lenders Mortgage Insurance. 

But you can take it further.

You can use that security to cover your stamp duty obligations as well, this isa bout 6% of the the purchase price. 

There is some risks to this strategy, especially if you don’t buy a property that goes up in value.

If you default on the loan, it’s your parents who will also suffer. The bank will come after the property they put up as security on the loan (after they sell yours). They’ll have to pay what you owe or lose the property.

So you have to feel very confident you are buying well in a good location and that you can handle the repayments before you go down this route. However, it will get you into the property faster, which means you can use our First Home Financial Freedom Framework to turn it into an investment property. Join our First House Buyer community to learn more about our framework. 

 

Suburb selection

Can you really predict the future growth of a suburb you’re considering?

You may not be able to predict the future, but you can look at certain indicators to get an idea.

Look to the past to get an idea about area growth over the years.

A capital growth for the suburb that is equal or better than the city’s average is a good start.

Also, don’t forget to research all the factors that can impact your property’s future capital growth.

Things like:

Pricing pressure from suburbs closer to the CBD
Growing income in the area, which indicates gentrification
Low vacancy rates and rising rents
New infrastructure
School catchment zones

One of the most common causes of capital growth is the ripple effect.

The ripple effect happens when buyer demand and increased property prices causes a “ripple” outward away from the CBD into other suburbs.

This means that buyers who can’t afford the suburb of their choice, because of price increases look to the next-best suburb.

Often this nearby suburb is lower-priced – until the subsequent demand reaches them.
And then the ripple effect pushes into the next suburb, and so on

Join our First Home Buyer Facebook community to learn more about our framework
https://www.facebook.com/groups/firsthomefirstinvestment/

Getting Qualified for Your Loan

Every lender wants to minimise their risk, which means they’re going to take a close look at your finances when you apply for a loan.

Increase your chances of qualification by following these tips:

1 – Make Sure It’s Genuine Savings

Lenders want to see that you’ve saved your deposit yourself. 

They will look at your last three to six months of savings. If yours don’t show consistent saving towards the deposit, you may be in trouble… Unless you’re renting right now. 

We have access to lenders who consider your rent payments as part of your savings!

2 – Clean Up Your Spending

One of our clients was applying for a loan when his account showed a weekly expense of $25. It was for a weekly lunch for him and his partner.

This shows how much detail lenders go into when looking at your expenses. 

3 – Check Your Credit File

Your credit score has a huge impact on your chances of getting approved. Every lender looks at it, which means you need to know what your credit file looks like.

Investors Choice Mortgages can help you with your loan, finance, tools and resources to suit your strategy. Feel free to book a time to talk with one of our mortgage broker experts https://investorschoice.com.au/bookatime

Getting Your Finances Set Up

The First Home Loan Deposit Scheme (FHLDS) will allow you to get a property with a 5% deposit and no Lender’s Mortgage Insurance.

Still, you’re going to have to come up with a decent chunk of change. 

And that means you’ll have to get good at budgeting. Here’s how:

Tip #1 – Cut Out Unnecessary Expenses

Sit down and make a list of your income streams and your expenses. Then, cut out anything you don’t need. For example, getting rid of a gym membership could save you $50 to $100 per month.

Tip #2 – Get Rid of Any Debts

It’s a good idea to get rid of debt as soon as possible. For one thing, you’re paying through the nose for interest every month. If you absorb the cost of clearing the debt in the short-term, you’ll be able to save more in the long-term.

But also…

Lenders look at your credit report. And if you’ve got a lot of debt, that may affect your serviceability.

For now, why not join our community to find out how we’re helping first-time buyers get on the property ladder?