Can You Use a Gifted Deposit to Buy a House in Australia?
Saving a deposit can be one of the biggest hurdles when you're trying to buy your first home.
For some buyers, particularly those entering the property market while house prices are high, saving a large enough deposit can take years.
That's where family assistance can sometimes make a difference.
If your parents or another family member are willing to provide money towards your deposit, you may be able to use a gifted deposit to help purchase a property.
But there are some important things to understand before relying on gifted funds.
Lenders have different policies around gifted deposits, and they need to be satisfied that the money is genuinely a gift and that you can comfortably afford the proposed home loan.
In this guide, we'll explain how gifted deposits work, what lenders may require and some of the things to consider before using a family gift to buy a home.
What Is a Gifted Deposit?
A gifted deposit is money provided by a family member to help you purchase a property.
The money is generally given to you without an expectation that it will be repaid.
For example, your parents may give you $50,000 to help you contribute towards the deposit on your first home.
The money could form part or all of the funds you're contributing towards the purchase, depending on the lender's policy and your overall financial position.
Can Parents Gift You Money for a House Deposit?
Yes, in many cases.
Parents are one of the most common sources of gifted deposits, although policies vary between lenders regarding who can provide the funds.
A lender may require the person providing the gift to confirm that:
The money is genuinely a gift.
It does not need to be repaid.
They won't have any ownership interest in the property as a result of providing the money.
The lender may also request a signed gift declaration or gift letter.
How Much Can Parents Gift Towards a Deposit?
There isn't one universal maximum amount that applies across every lender.
A family member could potentially provide a relatively small contribution or a substantial portion of the deposit.
However, the important consideration is that the lender will still assess your overall financial position.
For example, if you're purchasing a $700,000 property and your parents gift you $100,000, you'll still need to demonstrate that you can afford the proposed loan and meet the lender's other requirements.
The size of the gift doesn't automatically determine whether your loan will be approved.
Do You Need to Prove Where the Gift Came From?
Potentially.
Lenders have obligations to verify the source of funds used in a property transaction and may ask for evidence depending on the circumstances.
You may be asked to provide information such as:
Evidence of the funds being transferred.
Bank statements.
A signed gift declaration.
Identification for the person providing the gift.
The exact requirements depend on the lender.
This is why it's worth discussing the proposed gift with your mortgage broker before transferring the money.
Does a Gifted Deposit Need to Be Repaid?
This is an important distinction.
A gift and a loan from family are not the same thing.
If the money is genuinely a gift, there is generally no expectation that you repay it.
If your parents provide $100,000 but expect you to repay that money over time, it may instead be treated as a liability.
That can affect how a lender assesses your application.
It's important to be completely transparent with your lender about the arrangement.
What Is a Gift Letter?
A gift letter, sometimes called a gift declaration, is a document confirming that the funds have been provided as a genuine gift.
The lender may require the person providing the funds to confirm that:
They have given you the money voluntarily.
The money does not need to be repaid.
They won't have an ownership interest in the property.
The gift isn't subject to another financial arrangement.
The exact wording and requirements vary between lenders.
Can a Gifted Deposit Be Used for a First Home?
Yes.
Gifted deposits are particularly common among first home buyers.
For example, parents may provide financial assistance to help their adult children get into the property market sooner.
Depending on the buyer's circumstances, a gifted deposit could potentially be combined with:
Personal savings
Government grants or schemes
Eligible first home buyer concessions
Other acceptable funds
However, eligibility for government assistance depends on the specific scheme and individual circumstances.
Do You Still Need Genuine Savings?
This is where lender policies can become important.
Some lenders require borrowers with smaller deposits to demonstrate genuine savings.
Genuine savings generally refers to funds that you've accumulated or held over a particular period, rather than money that has simply been deposited into your account shortly before applying.
However, lenders differ in how they treat gifted funds.
Some may accept a gifted deposit without requiring the entire deposit to be demonstrated as genuine savings, while others may have specific requirements.
This is one of the reasons comparing lenders can be particularly important when you're relying on family assistance.
Can a Gifted Deposit Be Used With a 5% Deposit?
Potentially.
Some eligible borrowers may be able to purchase a property with a deposit of around 5%, depending on the lender, government schemes and their individual circumstances.
A family gift could potentially form part of that deposit.
However, the exact requirements depend on the loan and any applicable government scheme.
It's important not to assume that receiving a gift automatically makes you eligible for a low-deposit loan.
What If Your Parents Don't Have Cash Available?
Parents don't necessarily have to have a large amount of cash sitting in a savings account to help their children purchase property.
In some circumstances, parents may consider other forms of assistance, such as providing security for a loan.
This can involve a family guarantee or similar arrangement.
A family guarantee is different from a gifted deposit and comes with its own risks and lending requirements.
Anyone considering this type of arrangement should understand exactly what they're agreeing to before proceeding.
Gifted Deposit vs Family Guarantee
These two strategies are often confused.
Gifted Deposit
A family member gives you money to contribute towards your property purchase.
The money is generally not expected to be repaid.
Family Guarantee
A family member may use equity in their own property to provide additional security for your loan.
They don't necessarily give you the money directly.
The structure can be more complex and carries important risks for the guarantor.
If you're considering either option, it's important to understand the arrangement and obtain appropriate legal and financial advice where necessary.
What If the Money Is Coming From Overseas?
This can require additional consideration.
If your deposit is being gifted by someone overseas, the lender may request additional documentation regarding:
The source of the funds.
The relationship between you and the person providing the money.
Evidence of the transfer.
Currency conversion.
Anti-money laundering requirements.
International funds can sometimes add additional steps to the application process, so it's worth discussing this with your broker before transferring money.
What Are the Benefits of a Gifted Deposit?
There can be several potential benefits.
Getting Into the Property Market Sooner
Saving a large deposit can take years.
A family gift may allow you to purchase sooner than you otherwise could.
Reducing the Amount You Need to Save
A larger deposit can reduce the amount you need to borrow.
For example, if you're purchasing a $700,000 property, increasing your deposit from $35,000 to $70,000 reduces the amount you need to finance.
Potentially Reducing LMI
A larger deposit can reduce your Loan-to-Value Ratio (LVR).
Depending on your circumstances, this may reduce or eliminate the need for Lenders Mortgage Insurance.
However, government schemes and lender policies can also influence whether LMI applies.
Are There Any Risks or Considerations?
While receiving a family gift can be incredibly helpful, it's important to consider the broader family and financial implications.
Make Sure Everyone Understands the Arrangement
Everyone involved should understand whether the money is a genuine gift or a loan.
Misunderstandings can create problems later.
Consider the Family Member's Financial Position
Parents should make sure they're comfortable giving away the money and aren't putting their own financial security at risk.
Frequently Asked Questions
Can my parents gift me my entire house deposit?
Potentially, depending on the lender and your circumstances. The lender will still assess your income, expenses, debts and ability to repay the loan.
Does a gifted deposit affect borrowing capacity?
The gift itself generally isn't income, so it doesn't necessarily increase your borrowing capacity. However, it may reduce the amount you need to borrow and improve your overall loan-to-value position.
Do I have to pay tax on a gifted deposit?
Tax treatment can depend on the circumstances. If you're receiving a significant gift, it's worth obtaining independent tax advice regarding your particular situation.
Can grandparents gift a deposit?
Potentially. Lender policies vary regarding who can provide gifted funds.
Can I use a gifted deposit and my own savings?
Yes, in many circumstances. Combining personal savings with a family gift is a common approach, subject to lender requirements.
Why Choose Formulate Finance Group?
At Formulate Finance Group, we understand that everyone's path to home ownership looks different.
For some buyers, it's years of saving. For others, family assistance can help bridge the gap and make purchasing a property more achievable.
Our role is to understand your individual circumstances, explain your options and compare lenders to identify suitable lending solutions.
Based on the Sunshine Coast, we work with a wide range of Australian lenders and can help you understand how different lenders may treat gifted deposits, genuine savings, low-deposit lending and other forms of family assistance.
We'll also explain the costs involved and help you understand what documentation you'll need before submitting your application.
Most importantly, we'll make sure you understand the numbers before you commit to a property, so you can move forward with confidence.
Final Thoughts
A gifted deposit can be a valuable way for family members to help their children enter the property market, particularly when saving a traditional deposit is taking longer than expected.
However, not all lenders treat gifted funds in exactly the same way.
The amount of the gift, where the funds come from, whether you have your own savings and the type of loan you're applying for can all affect how your application is assessed.
If you're fortunate enough to have family willing to help, the next step is understanding how that assistance can work alongside your overall financial position.
At Formulate Finance Group, we'll help you understand your options, compare suitable lenders and guide you through the application process from start to finish.
Thinking About Buying Your First Home?
If your family is helping with your deposit, we'd love to help you understand what may be possible.
Contact Formulate Finance Group today for an obligation-free conversation about your home loan options.
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