The bank of mum and dad – what is it?
A phrase being thrown around these days is “The Bank of Mum and Dad”. This refers to home buyers having Mum and Dad help out in some way.
It can be very helpful, but also has potential issues.
Some of the ways parents can help are:
Gifted Deposit – if you need more deposit to make the loan work, you could either get a gift from family or they could lend you some money. If it’s a gift its really easy, but if it’s a loan, the bank will take into account the payments on your servicing.
Guarantor – If your parents have a lot of equity in their home, they could use this to boost your deposit up so you have a larger deposit. You have to be with the same bank and you are interlinked, which can be tricky when its time to remove the guarantee.
Co-borrower – You could have your parents go on as a co-borrower, where they own the house with you and are also responsible for the loan.
There are pros and cons to all options and we advise our clients on the best approach. The lenders may not be happy with the situation either so it may be up to them.
There are also estate issues to sort out to make sure that your parents are not left out if you sell the house, or you and your partner split up, or if they need the money back.
So it's important to get advice before you start. At DUX we spend time working this out with you, your parents, lawyers and the lender so that everyone is happy with the plan.
So if you are looking to go down the path of using the bank of mum and dad, get in touch with us and we can help you work it all out.