Buying A House With Inheritance Money: Expert Guide

Buying a house with inheritance money can be a smart way to enter the property market faster. While many first-home buyers struggle to save a deposit, an inheritance gives you flexibility to put down a lump sum, reduce your loan size, or even avoid Lenders Mortgage Insurance. However, banks still apply strict rules, and knowing how to meet them is key to turning your inheritance into home ownership. 

In this guide, written by an expert mortgage broker in Brisbane, we tell you everything you need to know about buying a house with inheritance money, as well as tips on how to get your home loan approved.

Let’s dive in…

Inheritance is often an unexpected gift for most of our clients.

There is not much information about buying a home with inheritance money because it is a rare and irregular situation. But that is where we come in. In this section, we will go through how inheritance works and what happens from the time you get it.

Let’s start by understanding the jargon around inheritances – mainly the word ‘estate’. 

 An estate can be defined as—the assets belonging to the person that passed away. 

Often the deceased would have previously written a will determining how the estate should be divided. An executor is then appointed to ensure the estate is divided according to what is in the will. However, if there was no will in place, the estate will be divided evenly by the court, which will choose an administrator.

Once the estate has been divided, the remaining debts will be paid out, and then assets will be distributed. 

In most cases, how inheritance is paid comes down to the fine print, which influences how the amount is paid, for example, in small instalments instead of a large sum. 

There may also be restrictions on what the inheritance is used for — e.g. for education purposes only. Other inheritance terms can include the money being released after certain milestones have been achieved, e.g. university or high school graduation.

The time frame of when you will receive your inheritance varies greatly—it can sometimes be a time-consuming and lengthy process.

The positive is that once the money has been released into your account, it is yours to do as you please. 

You might be eager to buy a home as soon as you receive the news of an inheritance. However, timing is not always straightforward. When inheriting money from a will, you cannot usually access the funds immediately.

Most inheritances go through probate, which is the legal process of validating a will and finalising the estate. This process can take anywhere from six months to over a year. Delays happen if the estate is complex or if family members dispute the will.

During this waiting period, it’s risky to make property offers. Instead, you can:

Many people assume that a cash inheritance is automatically tax-free. While that’s usually true, there are situations where taxes apply. If you inherit assets such as property, shares, or superannuation, the rules change.

For example:

Before committing your inheritance to a deposit, it’s worth seeking tax advice. The right strategy could save you thousands in the long run.

If you’ve received an inheritance, it can serve as a substantial deposit for your first home. In Australia, the average inheritance is approximately $125,000. This amount can significantly reduce the time needed to save for a deposit and may even allow you to purchase a home outright, depending on the property’s value, especially in regional areas. 

But there are a few factors you need to be aware of before you start making offers on houses.

In particular, there are 2 important factors that most banks want to confirm before giving you a home loan.

Lenders require proof that the inheritance is a gift and not a loan that needs to be repaid. This is to ensure that the funds won’t need to be returned, which could affect your ability to make mortgage repayments.

Typically, banks will ask for:

Once you’ve proven that the money is rightly yours, you’ll need to show the funds in your bank account or in a statement that has the name of the executor or trustee from the deceased estate
If the inheritance isn’t in your name, you’ll need a letter outlining that you can legally access the funds.
All amounts must be identical to what is in the executor’s letter.
Now, depending on who you are lending with, the timeframe of how long the funds need to be in your account will vary.

Ensure the inheritance is legally yours. Obtain a Grant of Probate, solicitor’s letter, or other official documents verifying your entitlement.

Determine if you will:

A mortgage broker can guide you through lenders’ requirements, compare home loan options, and help you use your inheritance efficiently. Brokers ensure you meet documentation needs and optimise your borrowing power.

Calculate your borrowing capacity. Include property prices, fees, stamp duty, and ongoing living costs. Keep a portion of your inheritance as a financial buffer.

 Prepare:

Look for lenders that accept inheritance deposits and offer the best rates. Some may waive genuine savings requirements if the deposit is substantial.

Once funds are cleared and lender pre-approval is secured, make an offer on a property within your budget.

Complete the home loan process, including any Lenders Mortgage Insurance if necessary, and finalise the property settlement.

After settlement, review your finances. Consider whether to pay off small debts, invest remaining inheritance, or maintain a savings buffer.

You’ll be able to qualify for a home loan if you have at least 5% of the property value available, which can come from the inheritance. Anything lower, and you’ll be at risk of getting your loan declined.

Now, even if you can show your 5% deposit, there is another challenge some banks will present: genuine savings.

Genuine savings are there to show lenders you have a bit of ‘hurt money’ in the property. Most lenders like to see 5% of the property purchase price saved in a bank account for at least 3 months, but this rule has a few exceptions.

In other words, some lenders will want to see you hold the inheritance in your account for 3 months before being able to buy a home. But the good news is that not all of them want to see the money in your account for 3 months.

You may be able to get around the genuine savings requirement if:

You can borrow up to 95% of the property value with specific lenders. And the best part is that you’ll be treated the same as a borrower who has saved the deposit themselves. 

So, in reality, receiving an inheritance will make no difference to the borrowing process— as long as the money is non-refundable.

But if you are borrowing more than 8-% of the loan-to-value ratio (LVR), you will still need to get Lenders Mortgage Insurance. And finally, don’t forget that just because you’ve got a sum of money doesn’t mean that the rest of the lending criteria don’t apply. You’ll still need a good credit history, low debt and enough income to maintain the loan. You’ll be treated as a regular home buyer, with no exceptions.

The ultimate benefit of using inheritance as a deposit is that you’ll be able to speed up the process of getting into the property market.

Good news – If you’re buying a house with inheritance money, you are still eligible for the First Home Owner’s Grant! 

The amount of the grant varies between states. However, it can be up to $15,000.This extra boost could help cover the costs of Government fees and solicitor fees.

All the same processes and eligibility requirements remain the same. For example, in Queensland, the grant only applies to new builds, those buying off the plan or structurally renovated properties meeting certain criteria. 

Read More: Am I eligible for the first homeowners grant?

When buying a property with an inheritance, you are viewed just like any other borrower. The same interest rates and offers are available for you as a buyer.  You will not be penalised or receive any different treatment when buying a property with an inheritance. 

So no, the bank won’t look at you badly just because you haven’t saved the money yourself.

The bank will review your income and eligibility as a buyer. As we mentioned above, you need to have good credit and be eligible to take out the loan you are applying for, even if you potentially have a large sum of money to put down as a deposit.

Read More: How Much can I borrow from the banks?

Now that you have all the information for buying a property with inheritance money, it’s time to consider other debts. 

It can be easy to dream about supercharging what you’ve got right now and buy a new property. 

But, if you have pre-existing debt, the question is, should you pay it off first, and which debt should you begin with?

This one will come down to your personal situation, but let’s look at a quick example.

Kate has received an inheritance of $40,000 from her grandmother, who has passed away.

She has a car loan of $10,000 which costs $1,000 per month.

Should Kate pay out the personal loan or leave it open?

(If your personal loan or other debts are going to reduce your borrowing capacity, then it could make sense to pay them off.)

In Kate’s case, her personal loan reduced her borrowing capacity by $172,000, so she decided to pay it out.

Want to see what is best for your situation? Get in touch with our mortgage brokers.

Read More:  Maximising your borrowing power.

Knowing what to do after inheriting money can save you from costly mistakes. While using your inheritance as a deposit is powerful, there are pitfalls to avoid.

Here are the most common issues:

Taking time to plan ensures your inheritance truly accelerates your property journey.

Have you just received an inheritance and want to buy a house but are unsure what steps to take next?

Our team at Hunter Galloway is here to help you buy a home in Australia. Unlike other mortgage brokers who are just one-person operations, we have an entire team of experts dedicated to helping make your home loan journey as simple as possible.

If you want to get started, please give us a call at 1300 088 065 or book a free assessment online to see how we can help.