Buying first home outright

I'm looking to purchase my first home (to live in) in Brisbane, and my (very generous) parents have offered to provide me with an interest free loan of 80% of the price of the house.

Their only conditions were for me to pay the 20% deposit myself (which I have already saved up for), set up a monthly repayment schedule, and that I had to use the money to purchase the house outright without taking out a mortgage. I have several questions about how this would work:

• Since I would have the finances sorted out beforehand, should I forgo any "subject to finances" clause in my contract/offer? Do you guys think that it would make my offer more attractive/competitive?

• How would the transfer of the money to the seller work? I've heard horror stories of buyers transferring large sums to either agents or lawyers to hold and have them disappear with it.

Apologies for the naive questions - this whole "being-an-adult-and-getting-a-home" phase is brand new to me.

 

Heard stories of adult children taking money from parents for a property and disappear with it. How do your parents know it wont happen to them?

Stories of normal transactions dont get on the news. You read every crime story in the paper and you wont go outside.

 

The usual questions apply. Document the loan? Siblings? Parents pension? Death, divorce? Do you repay the loan if you sell? Have you also saved stamp duty? What happens if you default?

 

First step should be with a solicitor to ensure everyone’s interests are fully protected.

Money will be transferred through your solicitor or bank.

Then have the loan fully documented with a legal mortgage over the property. This will mean you can’t take out another mortgage without your parents’ knowledge. Nor can you sell without their knowledge.

Yes, I know you wouldn’t do that, but get the legals right anyway. Protect everyone’s rights, particularly if you marry (or divorce) in the future.
Marg

 

We haven't discussed documenting the loan. Only have one brother and he has a place of his own which they also helped him with. They have sufficient funds for their retirement, and my monthly repayments will go towards that as well.

One of the conditions of the loan was that I would have to either pay them back in full over the next 20 years, or until the both of them are no longer around. If I sell the place, the money can be used for a new place, and the difference (if any) is returned to them. I'm a first time home owner who is looking for places under 500k, and fulfil all the criteria for stamp duty exemptions.

Yea, that makes sense. Thanks!

Back to my first question: Since I would have the finances sorted out beforehand, should I forgo any "subject to finances" clause in my contract/offer? Do you guys think that it would make my offer more attractive/competitive if i find the right place?

 

Yeah when purchasing you won't need any "subject to finance" clauses. But you'd still be wise to do "subject to building & pest inspection that the purchaser is happy with" clause.

 

How do you prove any of this?

Not saying it will be a problem, but it might.

 

Dropping the finance clause is going to make your offer more attractive, especially in a slow market. I'm seeing a lot of deals come through were the vendor is willing to accept a lower price if there's no finance clause. They've had previous sales that fell through on the finance, they've been burned. Keep a building and pest inspection clause to protect yourself however.

There's already been suggestions of getting legal advice to ensure everyone's interests are protected. Excellent advice.

Also consider, this is your first home, will it be your last? It may be worthwhile getting a regular loan with a lender, plus an offset account. Put your parents money into the offset account so you don't pay any interest. If you play this strategy out, it may put you into a better position to upgrade at a later date and keep this property as an investment. A bit of forward planning with considerations to finance, tax & investment strategies might save or make you a lot of money in the future.

 

Probably will need two independent solicitors, one for the OP and one for the parents.

 

A bloody good idea.

The OP can still make monthly repayments from other funds (not the parents’ money in the Offset) to repay the loan over 20 years.

 

Congrats on getting loan from the bank of mom and dad. Just make sure u pay them back or u will end up in the 18 levels of hell.

Always put subject to finance, doesn't make ur offer less attractive. Never let agent know u are paying cash, u can just make it up and write any bank/loan amt/interest rate. If agent knows u are buying cash means u are loaded, they will be sure to milk u dry...

U only let them know u are doing cash if u are buying the property as an investor and making a final offer.

U pay deposit first to agents holding trust account then couple days before settlement transfer all the remaining $ to ur solicitor/lawyer trust account and they will sort out the payments to seller and other parties. There is always a risk the money can disappear when it has gone to the solicitors account but then again u should choose one that's been around for a while and has good track record. PM me if u need one.