Bank of Mum and Dad

Bank of Mum and Dad – are your parents thinking about helping out with a parental guarantee?

There are 3 things you (and they) need to know.

1. The bank doesn’t take security of your entire parents property.

A parental guarantee allows you to use a portion of your parents’ property as additional security that supports your home loan. Say you want to buy a $500,000 property, and you don’t have a deposit but you have the income to afford the loan.

Your parents can add a portion ie a limited guarantee of $100,000 of their property to support the application. Essentially the lender is getting $600,000 of security with a $500,000 loan.

That makes the bank happy and you are happy too as you don’t have to pay Lenders Mortgage Insurance because you have less than a 20% deposit, the additional security can also cover your stamp duty costs and you can get into the property sooner with little cash.

2.There are risks.

If you default on the loan, your parents could suffer. The bank will come after the property they put up as security on the loan (after they come after yours).

So they need to be aware of the risks. The good news is that as soon as your property has grown in value, you can ‘release’ their property and you are on your own.

3. You still have to pay.

You have to make repayments on the entire amount borrowed. So do your numbers be confident you can handle the repayments before you go down this route.

No doubt about it, It will get you into the property market faster however you need to be guided on how to set this up right and how to buy right so you can release your parents property sooner. If you want to get set up right and discuss parental guarantees then,

Investors Choice Mortgages can help uncomplicate the process and help you on your journey. Make a time with us to discuss how we can help https://investorschoice.com.au/bookatime