Very soon we are are going to sell home privately (Queensland). We are thinking of offering deposit assistance to the new owners. We want to help someone get into the market who would otherwise be saving a few more years. As long as the new owners can get bank finance, we are happy for the new owners to pay us back over a few years and we will put caveat on property until repaid.
What percent do you think the new owners will need to have already saved to get finance through a bank if we provided help. We would consider up to 5% of purchase price as deposit assistance. We don’t want a contract to fall through if they don’t have enough savings or if bank won’t recognise us helping them.
I’ve not yet had a chance to speak with a lawyer (they’re still on holidays. Do I have to have any special licences (e.g. financial planning, realestate agent) to do this in Queensland?
Many thanks for your thoughts. 😊
It won’t be easy for them to get finance if they are borrowing the deposit, but they would need at least 20% to avoid having LMI involved with their stricter policies.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry!
Hi Mish,
Sounds like what you’re considering is vendor finance, specifically via carry back.
It can be done but you may face a few hurdles:
1. Buyers need to have a lot of borrowing power and yet, for some reason, a small deposit
2. The lender may see the 5% loan the buyers will owe you as ‘private loan’ (same as any other loan such as car or personal) and that will have a massive effect on the buyers borrowing power.
3. 5% vendor finance is very generous but it won’t go a very long way for the buyers. As Terry mentioned, they will need to lend only 80% from the bank to avoid LMI (unless they hold certain professions, can get a guarantor or some other ‘special’ consideration) and pay 5% stamp duty and purchasing costs (unless waived due to first home buyers scheme? Not sure about the rules in QLD)
4. Some lenders won’t be happy with this vendor finance deal. They wouldn’t want a caveat on the property as it complicates matters if things go south.
These are the main issues I could think of from the top of my head, I’m sure you’ll come across more challenges if you’ll go down that road. Would be happy to hear how it all turned out so please keep us posted? 👍😎
Cheers,
EthanEthan Timor | Aligned Finance Pty Ltd
http://www.alignedfinance.com.au/
Email Me | Phone MeActive Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)
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