Options for a home loan with less than a twenty percent deposit can be limited. This has led to parents or siblings helping some of our clients with the deposit. There are various methods of doing this. Seeking individual legal advice is important however this clip gives you a general idea of might be acceptable by the lender.
Gifting
Most banks are comfortable with some or all of the deposit coming by the way of a gift. They would generally need written confirmation from the person giving the gift to ensure it is not a loan. There are two main reasons for seeking a confirmation in writing. Apart from accounting for any cashflow commitments the banks also want to ensure that they are within the low deposit rules set out by the central bank. The RBNZ places restrictions on any borrowing over 80% of the properties value.
Deed of debt
Instead of a gifting letter some banks maybe comfortable with a deed of debt, which acknowledges some protection for the given amount in the event of a sale. Some parents may want to help their kids with the deposit, however they may want to ensure that if the property is sold, the financial help does not get spent.
If the deed of debt stipulates that there is no interest charged and no regular repayments on the given amount, more lending options are available for the home buyer.
Lending to family
Borrowing to get to the twenty percent deposit requirement is not acceptable in most cases by the bank. When there is regular repayments and interest involved. However non banks can be fine with this arrangement. If all the debt can be serviced by the client comfortably.
