Every week I will share a success story to show that it is possible for you to achieve home ownership as well.
This week’s story is around buying a house off family members. For privacy reasons I will use John and Jane Doe to replace client’s names.
CLIENT SITUATION
John & Jane Doe have been renting the same house for over 5yrs. The property is owned by Jane’s parents. Jane’s parents have agreed to sell the property to John & Jane. They have mutually agreed on a purchase price of $450K; which is approximately the market value of the property, at the time of purchase.
DEPOSIT
John had $25K in KiwiSaver and he also qualified for $5K from the HomeStart grant that Housing NZ provide for first home buyers that meet the criteria. Jane didn’t have either. Total deposit is $30K. Not quite enough to make the minimum 10% ($45K) required to get a mortgage from the banks.
Luckily, Jane’s parents were happy to accept getting a lower cash amount in their hand, and gift some of the equity in the house, to help them make up their 20% deposit.
Having 20% deposit gives them more options with their mortgage. If you have less than 20% deposit, more rules and fees apply. Long story short – if you have 20% deposit, it is much easier to get a mortgage.
$450K x 20% = $90K.
They already had $30K.
Parents gifted $60K from equity (value) of the house.
The gift is not real cash – by gifting the $60K, parents are accepting that rather than getting $450K cash in their hand, it will be $390K instead.
Now they have 20% deposit.
PERSONAL DEBT
John and Jane also had personal loans totaling $35K, and a Q Card of $7.5k. To ensure they will be able to afford to pay for the mortgage, rates, insurance and their current debt, parents also agreed to gift a further $20K to help them reduce their personal debt.
HOW THE PURCHASE PRICE WAS MADE UP
Bank approved 80% funding (80% of $450K = $360K).
John had his $25K KiwiSaver & $5K HomeStart grant = $30K. $60,000 was gifted by Janes parents from the equity of the house.
Of the actual cash that was available to distribute ($390K), parents were happy with $365K and John & Jane got back $20K, to pay down some of their personal debt. By consolidating some of their debt onto the mortgage, they reduce their outgoings and save more money to make the mortgage and other living expenses more affordable.
RESULT
John & Jane are now home owners thanks to the support of Janes parents. Without their support, they would not have been able to buy the house. And, they would not have received funds to reduce their personal debt. For Janes parents; they are now debt and mortgage free. Win-win for both all parties involved.
Message me with any queries.
Jon.
