The Bank Of Mum And Dad
If you’ve made plans for your parents to help you financially, then just be aware that there’s a set procedure to follow as this money has to be officially ‘gifted’.
What is gifting money and what does it involve?
The difference between being loaned the money and gifted the money is that with a gift, you don’t have to pay it back.
On the whole, mortgage lenders tend to prefer the money to be gifted. You just need to ask your parents to write a letter detailing how much they’ll be gifting, and that the money does not need to be repaid.
If your parents would rather loan you the money, i.e. it does need to be paid back, then your mortgage adviser will have to take these payments into consideration when working out how much you’ll have to repay in total (mortgage and loan to parents).
A close relative can act as a guarantor on your mortgage. This is often an attractive option for first-time buyers as the guarantor’s income is taken into account when working out how much the borrower can afford to borrow. Therefore, you may be able to borrow more than if you were applying on your own. However, this does mean that if you’re unable to make your repayments, your guarantor will be expected to make them on your behalf. A guarantor would, therefore, need to be able to afford all of their own current commitments and lifestyle, as well as your mortgage, should you not be able to pay.
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