Gifted equity home loans: buying from family

A favourable purchase is a sale at a discount, usually between related people. The seller gives up some of the property's value instead of transferring deposit money into your account.

Some lenders can assess an eligible family purchase against an accepted market valuation rather than using the lower contract price. We need confirmation for the exact relationship and transaction. A family agreement about what the home is worth is not a lender valuation.

Sienna and her partner were buying from her uncle for $800,000, with a valuation of about $950,000. Ty on our team checked the favourable-purchase rule with the lender's credit team and confirmed that it could consider the $950,000 value.

The $150,000 difference gave them equity to work with. I would still check the loan amount and buying costs before treating that discount as enough deposit.

This example does not automatically avoid LMI. At 80% of $950,000, the loan would be $760,000. The buyer would need another $40,000 towards the price, plus buying costs, to reach that level unless another eligible option applies.

If the lender instead accepted a $900,000 valuation, an $800,000 loan would be about 88.9% LVR. A lower value can change the cash required and loan costs, so I would check it before the contract becomes unconditional.

The lender needs to know that the discount will not be repaid. ING, for example, publishes a Gift Policy Statutory Declaration for gifts towards a property purchase. Its form records the gift amount and who receives it.

For gifted equity, I would confirm which declaration and valuation rules the lender requires for the family sale. Our ING review explains its favourable-purchase approach. The contract and declaration must match what the family has actually agreed.

If the bank's value is lower than expected, our guide to challenging a bank valuation explains what evidence can help and when a review is worth requesting.

Buying only a share of the home needs another check. The owners, borrowers and use of the property may differ from a full transfer. Our guide to buying a house with your parents explains the ownership questions.

A discounted price does not necessarily reduce transfer duty. In Queensland, duty is usually calculated on the higher of the consideration and the property's unencumbered value, subject to any applicable concession or exemption. The Queensland Revenue Office explains the calculation.

For related-party transactions, your solicitor also needs appropriate evidence of value. The seller should obtain advice about any capital gains tax, pension or estate-planning consequences. Those depend on the transaction and their circumstances.

I would confirm how much the seller actually receives after their mortgage payout and costs. A generous discount can leave them with less cash for their next home or retirement than they expect.

If you are buying an unrelated seller's home, a family discount is not available on that purchase. A guarantor loan or cash gift may still help. Compare the ways parents can help you buy before deciding.