With the state of the property market in Australia, using funds that have been contributed to property buyers as a gift from friends or family is very common. There are many obvious benefits of having gifted funds, however there are some things to consider before accepting these gifted funds.
- If receiving gifted funds from friends or family you may need a letter or statutory declaration from the person/s providing the funds outlining that the funds are a gift and do not need to be repaid. Hence it is advisable that before accepting a gift of funds that are to go towards the purchase of a property, to ask if they are happy to provide a letter or a statutory declaration
- In many cases* lenders will still require you to prove genuine savings and this usually involves holding 5% of the purchase price in your account over a 3 month period. Therefore, where possible, it is advisable to have the funds in your account early so you can prove to a lender that these gifted funds are part of your genuine savings.
- There is a difference between gifted funds and borrowed funds from friends or family and lenders will assess differently.
- Gifted funds don’t need to be repaid, hence there is no continuing obligation on the recipient to make repayments back to the person/s that provided them with the funds
- Borrowed money from friends or family that needs to be paid back have a continuing obligation to repay that loan. Hence we and lenders will need to take that into consideration in your ability to repay the loan. Generally this will result in a lower borrowing capacity.
- If accepting gifted funds it maybe worth having a conversation with the person or persons providing the funds to see if they would rather act as guarantor instead. It’s not for everyone, but it’s always good to explore as many options as possible. Read more here No Deposit Loans
Hopefully the above has given you a little more to think about before accepting a gift that will form part of your deposit. If you have any further questions please do not hesitate to contact us on 8823 5400
*mainly for loans over 80% of the value of the property