Many people are relying on their parents to help them buy their first home or house as it becomes harder to access loans from banks to place that deposit. Most banks do not give 100 percent loans of the value of the home which was common before 2008. Help from parents financially means that you are able to make huge savings because a larger deposit means that you are eligible for lower interest rates. There are a number of products that are designed for parents that will help their children finance the first home.
One of these products is a private home loan also known as an intra family mortgage or a private mortgage. With this loan you sign a contract and a payback schedule which states the amount of money that you will pay every month and it includes the interest that you have agreed upon. The contract also has the provision that allows your parents to foreclose on the property in case you default on the loan. This protects them in the event that another lender forecloses on the property. Another kind of loan hat parents can advance is one where your parents still have ownership of the money that they advance you so that their name also appears as part owner of the house.
The way this kind of loan works is that you and your parents put your money in a joint savings account which will be the deposit to the house. A charge may be placed over the money in that account. This helps to reduce the interest rate that you will pay on the house. For many parents this is ideal if they are contributing to a home that their child is purchasing with a partner. In case they split, the partner cannot take that money as the parents still have ownership of their money. You will also not be able to access the money until the mortgage on the house is worth some percentage of the property which in most cases is 75 percent.
There are various benefits to this kind of arrangement such as you will pay a lower interest rate then you are able to place a larger deposit so that you make some savings. Your parents are more likely to give you a lower interest rate if you are repaying back the money with interest which is cheaper than what your bank would give you. You may also be able to have a more flexible repayment contract as compared to what you would have with a financial institution which may be less financially strenuous to you.
For your parents some of the benefits that this kind of arrangement has is that they may get a steady income from the payments that you make to them instead of the money just sitting in the bank. The regular payments are also welcome as they become a steady income for them. It is important that u\you make the payments as scheduled as a sign of good faith.