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With a record low cash rate of 2.0% and rising property values, many first home buyers looking to enter the property market are unable to scrounge the funds for a deposit. As a result, many young Australians are turning to their parents or an immediate family member for a gifted deposit that is both “unconditional” and “non-refundable.”
While some first-time buyers or young borrowers may be stimulated by low-interest-rate settings, many experts are citing rate hikes on the horizon, which means borrowing could become more expensive.
Coupled with the recent tightening of borrower guidelines due to the APRA’s new policies and changes to the First Home Owner Grant (FHOG), it’s likely that more Australian borrowers will need assistance through a gifted deposit to get into the real estate market.
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Provided by a parent, guardian or close relative such as your grandparents, a gift letter confirms that someone is providing you with the funds to complete a deposit for a home loan. The gift letter must state that the deposit is an “unconditional” gift. Generally, it should not be repayable (some lenders may make an exception for this).
Most lenders require the gift to be held in the account for a minimum of three months prior to purchase application approval, particularly if you have less than 20% of the deposit saved up.
In some cases, lenders will need to confirm the source of your deposit to ensure that you are not sourcing the funds from credit cards, a personal loan or any other form of finance. In other words, the lender wants to make sure that you have not taken out another form of finance and won’t become preoccupied with servicing other debts.
If your parent or family member has agreed to gift you the deposit for a home loan, you will need to approach your lender to see whether or not a gifted deposit will be accepted. If so, you’ll need to provide the lender with a standard gift letter, an example of which is detailed below.
Most borrowers need to show proof of at least 5% in genuine savings, such as regular deposits from a salary over a period of no less than three months. The lender will ask to see recent bank statements as evidence of due diligence and financial discipline. If the lender doesn’t believe you can demonstrate financial discipline and the ability to put money away, you may be charged a higher interest rate or your application may be denied.
Australian lenders have strict requirements about what needs to be included in the gift letter, including but not limited to:
02/01/2016
To whom it may concern,
Re: Natasha Gyles
I confirm that I am giving my daughter Natasha Gyles an unconditional gift of $65,000 for her to use to buy a property located in Mona Vale, NSW. I confirm that this gift is non-repayable and non-refundable.
Should you require any additional information regarding this gift, please do not hesitate to contact me on 02 XXX XXXX.
Regards,
(parent signature)
Mitchell Gyles
1 York St
Sydney NSW 2000
You should speak to your lender or broker about any other steps required to ensure the acceptance of your gift letter.
Alternatively, some lenders may specifically request a statutory declaration to confirm the gifted deposit. An example of a statutory declaration form is detailed below.
A bank will often ask for a statutory declaration as a precautionary measure to ensure that the gifted deposit is being provided by a family member, that it is “unconditional” and preferably “non-repayable.”
While the process is fairly straightforward and your lender will specify what you need to include in the statutory declaration, many people omit important information. Here are some things to keep in mind when forming the statutory declaration document:
There are numerous declarations or details that a lender may need you to confirm, some of which include:
I/We: Mitchell Gyles
Of: 1 York St Sydney, NSW 2000 in the State of New South Wales (NSW), solemnly and sincerely declare the following:
I will give my daughter Natasha Gyles a total of $65,000 to assist her to purchase a property in Mona Vale,NSW. This gift is unconditional, non-repayable and non-refundable.
And I/we make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Oaths Act 1900 (as amended).
Subscribed and declared at Sydney NSW
January 02, 2016
(parent signature)
Mitchell Gyles
Witness:
(SIGN)
Name: (Name of JP)
Justice of the Peace #: 123456
If your gifted deposit is less than 20% loan-to-value ratio (LVR), you may need to payLMI. However, it’s likely that you’ll be able to capitalise LMI into your loan.
Enter your details in the calculator below to work out how much you can afford to borrow.
Back to topWhile some lenders will not lend funds to borrowers who have received their deposit money as a gift, there are several Australian lenders, such as the Commonwealth Bank of Australia and ING Direct, that will accept a gifted deposit for your loan application.
It’s important to note if you borrow the deposit from your parents and intend to repay the amount later, this is considered a loan and not a gift. Some lenders won’t accept this type of loan arrangement.
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