Using a gifted deposit for your home loan

How to use a cash gift as a deposit for a house

Saving up a deposit for a house is one of the biggest hurdles for Australian home buyers today. Many first-time buyers get help from their parents.

Lenders are generally happy if part of your deposit comes in the form of a cash gift from your parents or other family members.

But every lender has slightly different criteria about what they'll accept.

You may need to keep the gift in your bank account for a few months. Or the bank may require you to contribute some of your own money along with the gift.

Genuine savings explained

Even if you have money in the bank, most lenders require what's known as genuine savings. This means they want you to demonstrate an ability to save money because it demonstrates you have the financial ability to repay the loan.

So in most cases, even if you come across a large sum of money, a lender will want you to hold it in your account for at least three months. For some lenders the time can be as long as 6 months.

Many lenders require 5% genuine savings

Many lenders want borrowers to have at least 5% of the property value in genuine savings. The rest can be a cash gift without any issues.

This means that if you're buying a property worth $500,000, the bank wants to see evidence of your own savings worth 5%, or $25,000. Your family member might then be willing to give you a cash gift worth $75,000, giving you a 20% deposit.

Expert insight

"The paperwork required regarding the gift differs between lenders. So it's wise to get some help from a mortgage broker or do your research before submitting a loan application with a non-refundable gift included."

Daniel Corran

Director at Capitalise Finance

Can't wait 3 months?

But what happens if you're ready to buy a house and can't wait 3 months? Some lenders will require the person providing the gift to submit a gift letter or sign a statutory declaration stating that the money is to be used for the purchase of property and that the loan is unconditional.

Why increasing your deposit via a cash gift is so helpful

The standard Australian home loan deposit is 20% of the property's value. That's a tall order for many borrowers. But it does have some advantages:

1. You can avoid LMI. If your deposit is under 20%, you most likely have to pay a lenders mortgage insurance (LMI) premium on top. This is because a low deposit makes you a riskier applicant. LMI protects your lender in the event you can't repay the loan.
2. You can boost your borrowing power. A bigger deposit could let you stretch your borrowing power further, allowing you get a slightly better property.
3. Your loan size can be smaller. It seems obvious but buying with a bigger deposit means borrowing less, which means lower monthly repayments. This saves you money.

This is why a cash gift that gets you to a 20% deposit makes a big difference for many home buyers.

Other ways to grow your deposit

• Guarantor. Instead of providing a cash gift, some parents use their own home or as security, acting as a guarantor for the loan. This means you don't have to provide any money. But if the borrower defaults on their mortgage, then the family member's property is at risk.
• First home owner grant. State and territory governments offer grants to first home buyers. You can use this money to form part of your deposit, provided you meet the eligibility criteria.

Frequently Asked Questions

• Do mortgage lenders accept gifted deposits?

  Yes, most mortgage lenders accept gifted deposits, but they require a signed declaration stating that the money is a gift, not a loan. Also, many lenders like to see evidence of genuine savings, so they'll want to see you have a savings habit towards at least 3-5% of the deposit, with consistent savings over a period of time.

• Can I use my parents' equity as a deposit for a house?

  Yes, you can use your parents' equity through a guarantor loan to help with your house deposit. This may allow you to avoid lenders mortgage insurance (LMI).

• What is the maximum gifted deposit?

  There is no limit on the amount of gifted deposit you can use towards a property deposit, but lenders may require evidence of that the gift is not a loan and that it's not expected that the gift is repaid.

• Can I get a home loan with gifted money?

  Yes, you can get approved for a home loan using gifted money for the deposit. However, you must provide a signed gift letter to prove the money is not a loan.

• How do I provide proof of gifted deposit?

  Proof of a gifted deposit is typically provided through a gift letter, which includes the donor's details, the amount gifted, and a declaration that the money does not need to be repaid.

• What is a letter confirming gift of money?

  A gift letter is a document confirming that the funds given for a home loan deposit are a gift and not a loan. It is required by lenders to confirm the source of the deposit.

To make sure you get accurate and helpful information, this guide has been edited by Richard Whitten as part of our fact-checking process.

Written by

Sarah Megginson

Personal finance expert + media spokesperson

With over 20 years of experience in property, finance and investment journalism, Sarah is a trusted expert whose insights regularly appear across television, radio, and print media, including Sunrise, ABC News, and Yahoo! Finance. She has previously served as managing editor for Your Investment Property and Australian Broker, and her expert advice has been shared over 2,500 times in 2023-2024 alone. Sarah holds a Bachelor’s degree in Communications and a Tier 1 Generic Knowledge certification, which complies with ASIC standards. See full bio

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