19 May 2016
As house prices have increased in line with the demands of the current market, the opportunity to purchase their own property has been difficult for many people wanting to buy a first home who only have access to a small deposit. One thing that has helped many people is the receipt of gifted funds. The gift can take the form of cash or equity in a property, but there are a few important things to know before making those phone calls to your relatives! 
This is when you are purchasing a property but rather than the full price of the purchase being paid to the vendor, a lesser amount is required for settlement. For example, somebody is purchasing a property valued at $250,000 from their parents but they only require $200,000 to be paid into their account. The balance of the purchase (i.e. $50,000) is written up by the solicitor as a gifted deposit. Consequently, the loan amount required for settlement is $200,000 or 80% of the security property value. In this case the value will usually need to be determined by a registered valuation so that the true market worth of the property is attained, in order for the Sale & Purchase contract to reflect a true rather than an inflated price.
This is as obvious as it sounds, whereby a cash amount is provided for the purpose to assist the buyer with their purchase. However, there are some restrictions. Many lenders will only allow gifting from a relative and often want it to enhance the borrowers own genuine savings, rather than being the full deposit on its own. Also, the gifted amount needs to be non-refundable. If the gift will need to be paid back at some stage, then it is no more than a loan, which as far as lenders are concerned will be another liability that the borrowers will owe, in much the same way as an Interest Free Hire Purchase. As the criteria for qualification for high LVR lending requires a good surplus of funds between income and expenditure to be able to service the loan comfortably, the more liabilities that you have, the harder it will be to qualify for the loan!
Whether the gifting is from equity or cash, it is vitally important that any plan for gifting is discussed with your independent advisers, being your solicitor, accountant and mortgage adviser. Dependant on the level of gifting and how it relates to the borrowing for the purchase will determine whether the lenders will be happy to advance the funds required. Therefore, if you have plans to gift funds to a relative or approach someone to ask them if they are able to help you with your deposit requirements, it is important to discuss your intentions with your registered mortgage adviser as soon as possible. 

Published In Whakatane Beacon

This post was written by

John White - who has written 90 posts

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