Buying a Home With Your Parents: Co-Borrower, Guarantor or Gift?

“Can my parents go on the loan with me?” is one of the most common questions first-home buyers ask once they realise their own income only stretches so far. The answer is yes, sometimes. But putting a parent on the loan is a different thing from putting them on the title, and both are different again from having them guarantee part of it. Each option changes who is liable, what the lender assesses, and what happens to stamp duty and government schemes.

Three Ways Parents Can Help, and They Are Not the Same

Our post on guarantor loans covers the middle option in detail, and gifted deposits has its own guide. This post is about the first row: parents who sign as co-borrowers.

What a Lender Sees When a Parent Joins the Application

Adding a parent’s income can lift borrowing capacity, but it does not work like simple addition. A lender assesses every applicant’s income, debts, credit cards and living expenses together. Three things come up more often than buyers expect.

• The parent’s age. If a parent is within ten to fifteen years of retirement, lenders typically want to see how the loan will be serviced once their wage stops. That usually means super, a pension or another income source that can be documented. Some lenders will not count employment income past a certain age.
• The parent’s own debts. Their home loan, car loan and credit card limits all count against the joint application, even if the child is paying nothing towards them.
• Both sets of expenses. A household with two separate households’ living costs usually shows less surplus than a single one. Adding a parent can sometimes reduce capacity rather than increase it.

Policy varies a great deal between lenders on all three, so the same family can get different answers from different banks.

The Part That Catches People Out: Schemes and Stamp Duty

Government help is where co-owning with a parent gets complicated, and where the details matter most.

The First Home Guarantee

According to Housing Australia’s guidance, joint applicants do not have to be a couple. Friends and family can apply together. However, every applicant must meet the property ownership test: in the ten years before the loan, none of them can have held a freehold interest in Australian real property, a lease of 50 years or more, or a company title interest in land. A parent who owns or recently owned a home will usually fail that test. If they are on the application, the whole application can fail with them. Income thresholds, price caps and lender criteria also apply, so check the current figures with your lender before relying on any of this.

For a buyer who wants to use the 5% deposit scheme, that usually points to a guarantee or a gift rather than a co-borrower.

NSW stamp duty

Revenue NSW’s First Home Buyers Assistance Scheme currently gives a full duty exemption on homes up to $800,000 and a concessional rate between $800,000 and $1 million. A mixed group of buyers can still qualify if the eligible first-home buyers are buying at least half of the property, but the ineligible co-owners pay duty on the share they acquire. So a parent on the title can mean a duty bill that a sole buyer would not face. The rules also set a residence requirement for the eligible buyer.

Thresholds and conditions change, so check the Revenue NSW calculator for your actual numbers before committing.

Questions Worth Settling Before Anyone Signs

• Does the parent need to be on the title, or only on the loan? Some lenders will take a parent as a borrower without placing them on the title, and others will not.
• If the parent is on the title, who owns what share, and what happens if the child wants to buy them out or sell?
• What happens if the parent needs the money back, becomes unwell or dies? A solicitor can set up the ownership structure, and a will needs to match it.
• How does the extra liability affect the parent’s own borrowing, their retirement plans and, in some cases, pension entitlements?
• What is the exit plan? The most workable arrangements name a point, such as a refinance into the child’s sole name once their income grows, when the parent comes off the loan.

The ownership, tax and pension questions are for a solicitor and an accountant, not a lender. A lender can tell you what it will assess, but it cannot advise your family on the structure.

Frequently Asked Questions

Can my parents be on my home loan without being on the title?

Sometimes. Lender policy differs: some will accept a parent as a borrower with no ownership interest, and others require every borrower to be an owner. It is worth asking before choosing a lender.

Will adding my parents to the loan increase how much I can borrow?

It can, if their income is stable and their debts are low. It can also reduce borrowing capacity if their existing commitments and living costs outweigh the income they add.

Can I use the First Home Guarantee if my parent is a co-borrower?

Only if every applicant meets the eligibility rules, including the ten-year property ownership test. A parent who owns a home usually will not, so a guarantee or gifted deposit is often the better fit.

Does a parent on the title affect stamp duty?

In NSW it can. Where a co-buyer is not eligible for the first home buyer concession, they may pay duty on their share even if the first-home buyer’s share is exempt.

The Bottom Line

Buying with a parent can work well when everyone understands what they are signing, but it is rarely the simplest option. The first decision is which role the parent actually plays: borrower, owner, guarantor or neither. Once that is settled, the lender, the scheme rules and the stamp duty position follow from it. For the wider picture on joint applications, see buying a house with a partner, friend or sibling.

This is general information, not personal advice. Ask a lender what it will assess, and a solicitor and accountant about ownership and tax.

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Written by Michael Wignall, Lending Area Manager with 30+ years in banking and home lending across the ACT, Illawarra, and Riverina. Got a question or an idea for a post? Get in touch.