Home loan with a gift as a deposit

2010 November 7

Yes you can get approved!

Have you already spoken to your bank and been told that you need to save a deposit? This isn’t always the case! Some lenders have specific “non-genuine savings” guidelines that allow them to approve a mortgage for someone who has not yet saved a deposit of their own.

In most cases these people have been given a deposit of 5% or 10% of the purchase price from their parents. So if you are being given a deposit, how can you get approved for a home loan?

What are the lending guidelines?

Firstly, you must comply with all standard lending criteria as you would for any normal bank loan. In particular consider how the banks will assess you based on the below criteria:

  • You must have a clean credit history, and low number of enquires on your credit file.
  • You must have stable employment that you have been in for a minimum of six months (some exceptions are allowed if you have a larger gift size).
  • You must be able to afford the loan.
  • The property you are buying must be in a town that has at least 10,000 people (there are some exceptions).

How much can I borrow?

The amount that you can borrow depends primarily on if you have savings or not. You can borrow up to 90% of the property value if you do not have 5% in genuine savings. If you do have 5% in savings of your own as well as the gift then you may be eligible to get approved for a 95% mortgage.

Can I borrow 95% without any savings?

Technically there are lenders that offer 95% home loans with just a gift as a deposit. However in reality we find that credit criteria that these lenders set are so strict that few people are able to qualify for a loan. In addition to this the Lenders Mortgage Insurance Premium is not capitalised (add to) the loan, so you really only get to borrow 92% or so once the premium has been paid.

We strongly recommend that you apply for a 90% home loan instead.

Will the banks have a stricter assessment of my loan?

Yes, if you do not have any savings of your own then lenders will be stricter in the way that you assess your loan. In particular they will consider the following:

  • Your credit score will be critical.
  • If you have a large number of unsecured debts (credit cards & personal loans) then you are unlikely to get approval.
  • If you are currently paying rent & have a good track record of paying your rent on time then this will count in your favour.
  • If you have a little in savings of your own (a few thousand dollars) then this will count in your favour.
  • If you have saved money in the past, e.g. for a holiday or car, then you can provide statements of these savings as evidence that you are good at managing your finances.
  • They are far less likely to make an exception to their normal credit criteria.

Please be aware that the majority of lenders will not give you a loan if you do not have any savings of your own. You can refer to specialist mortgage brokers such as the Home Loan Experts for a home loan with a gift as a deposit.

How do I prove my deposit?

You will need to provide a letter from your parents confirming that they are giving you a gift to help you to buy a home. A few lenders will also require the gift to be put into your bank account to prove that the funds are not being borrowed.

Gift letter template

The banks may ask your parents to write a letter confirming that they are giving you a gift. Below is an example of a gift letter.

We are giving our daughter Anne Johnston a gift of $30,000 for her to use to purchase a home. This gift is not not a loan, it is neither repayable or refundable under any circumstances. If you would like more information you can contact us on 0412 345 678.

Date: 1/7/2011

Signed

George Johnston & Janine Johnston
55 Lenore St, Brisbane QLD 4000

Applying for a home loan

If you need help getting approved for your home loan, then we recommend that you contact the Home Loan Experts, they are specialist mortgage brokers and know which lenders can assist in your situation.

The secret to getting approval is to apply with a lender that accepts gifts as a deposit, all too often people apply with lenders that have strict genuine savings requirements, and in doing so they waste their time and damage their credit history. It makes much more sense to approach a mortgage broker who specialises in gifted deposits.

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