Deposits: Alternatives to cash
For many Australians, it can be challenging to save up enough money for a cash deposit - particularly as lending requirements with banks become stricter.
It’s a good idea to be across what options are out there for those buyers who don’t have a deposit saved. Here are three options that can be considered.
A deposit bond substitutes a cash deposit between signing a contract and settlement and it's a common feature offered by lenders. Many lenders offer deposit bonds. To qualify, you usually have to have your loan fully approved - or subject to a valuation if you’re going to auction. Most deposit bonds will incur a fee.
A cash gift
For some Australians, particularly younger generations, a viable option could be a cash gift from a parent or other family member.A cash gift can help buyers qualify for a home loan. They also have the added benefit of reducing the monthly repayment amount and eliminate Lenders Mortgage Insurance (LMI), which is put in place by the lender to protect the lender in the event a buyer can’t meet their mortgage repayments.
A third option is putting up a family guarantee, which involves using the equity in a property currently owned by the buyer’s family as security against a new home loan. There are now methods available to structure the guarantee to minimise the risk to family members.
When considering a cash gift or family guarantee, it’s important for all family members to seek legal advice before making any decisions.
Everyone’s situation is different and that’s why it’s important for buyers to assess their personal and financial circumstances as well as the options available to them to make sure their decision is the right one for their lifestyle.