Gifted deposits for home loans: How do they work?

Saving up a deposit is one of the largest obstacles to purchasing a home, which is why many parents step in to help their children out. If you’re in a position to do so, gifting a deposit can be just what your child needs to get their home loan application over the line.

If your parents have the means to do so, they can help you get your deposit over the 20% threshold preferred by banks by gifting you a lump sum of money. This can come from money they have saved up, assets they have sold, or superannuation payouts they have received.

The bank might request a signed statement from your parents confirming the funds were gifted to you unconditionally. This is so the bank can be sure that the money wasn’t given to you with the expectation that it will be repaid, as this would cut into your ability to service your mortgage.

If you’ve been asked to provide a gifted deposit letter, you might need to provide the following information:

• The names of the people giving and receiving the gift
  

• The sum gifted
  

• A declaration that the sum is unconditional, non-repayable and non-refundable
  

• A declaration that the gifter does not hold a stake in the property

There’s a big difference between money that was gifted to you and money that was borrowed. If your parents expect you to repay the money, your bank will consider this a financial commitment — much like it would a credit card or personal loan.

When it’s determining your serviceability, your bank will add the money you owe your parents to your list of liabilities. If it’s a substantial amount, it could ultimately affect the amount of money the bank will be willing to lend you.

Generally, banks will only accept a gifted deposit if it comes from your parents, but they often make exceptions for immediate family members such as siblings, grandparents or spouses.

If you have been gifted a lump sum from someone in your extended family, such as an aunty or uncle, you might need to provide some details about the nature of your relationship (for example, if they were an important figure in your life). This is to convince the bank of your closeness and the likelihood that the money was given unconditionally.

Of course. Lenders like to see a larger deposit as it reduces your risk profile in their eyes, potentially allowing you to borrow more and access better rates.

On top of that, adding your own savings to funds you were gifted provides evidence that you’re disciplined enough to set aside money regularly. By itself, a gifted deposit won’t tell a bank much about your ability to save money or service a mortgage.

There are plenty of ways parents can help their children purchase a home, and not all of them require parting with large sums of money. These include: 

Become a guarantor: This is when parents (or other family members) use the equity in their home as security for their child’s loan. As a guarantor, you’ll be liable for the loan if your child is unable to satisfy their repayment conditions. It’s a significant decision, so make sure you seek independent legal and financial advice before you agree to anything.

Take out a joint mortgage: Co-borrowing with your child means combining your incomes and committing to making regular mortgage repayments, with each party ultimately owning a share of the property. This can increase your borrowing power, allowing you to set your sights on more expensive properties.

Of course, if you already own a property, your child may no longer be eligible for any stamp duty exemptions that would have been available had they purchased the home without your help. This can bump up your upfront costs by tens of thousands of dollars.

Provide rent-free living: Letting your child move back home (or stay for longer if they haven’t yet left) can eliminate one of the biggest drains on their finances and help fast-track their savings goals.