Do you know a Family Loan Agreement can help you buy?

A family loan agreement is a formal arrangement where a family member lends money toward your deposit or purchase costs, with clear repayment terms documented in writing. Lenders treat these loans differently to cash gifts, and the structure you use affects both your borrowing capacity and your ability to qualify for concessions like the Australian Government 5% Deposit Scheme.

Why lenders require a family loan agreement to be documented

Lenders assess every ongoing financial commitment when calculating your borrowing capacity. An undocumented loan from family is still a liability, but without a formal agreement, the lender has no way to confirm the repayment terms or whether the arrangement is genuinely a gift. Most lenders will either assume a notional repayment amount, reducing what you can borrow, or decline the application outright if the source of funds cannot be verified. A properly drafted family loan agreement, signed by both parties and often witnessed by a solicitor, provides the lender with certainty about the monthly repayment amount and the loan term. If the family loan is no interest or has a deferred repayment schedule, that detail must be stated in the agreement. Lenders will include any regular repayment in your debt-to-income calculation and serviceability assessment, just as they would for a personal loan or car loan.

How family loan agreements differ from guarantor arrangements

A family loan agreement means you borrow money from a family member and repay it over time according to agreed terms. A guarantor arrangement means a family member uses the equity in their own property to support your loan, without transferring any cash to you. Under a guarantor structure, your parents or another relative offer their property as additional security to the lender, which can reduce or eliminate the need for Lenders Mortgage Insurance if your deposit is below 20 per cent. The guarantor remains liable for the portion of the loan they are responsible for, typically up to the amount required to bring your effective LVR to 80 per cent. With a family loan agreement, the family member is not on your mortgage and has no security interest in the property you are buying. The two structures can sometimes be used together, but each serves a different purpose and must be documented separately.

Structuring a family loan agreement to preserve First Home Owner Grant eligibility

In New South Wales, the First Home Buyers Assistance Scheme provides a full stamp duty exemption on homes valued up to $800,000 and a concession on properties between $800,001 and $1,000,000. Eligibility requires that you have not previously held a relevant property interest in Australia. If a family member is added to the title as a co-owner to facilitate the loan, that person may disqualify the transaction from receiving the concession, even if they already own property elsewhere. The family loan agreement must be structured so that the family member remains a creditor only, with no legal or beneficial interest in the property. Buyers in Riverstone, where median house prices sit comfortably within the $800,000 exemption threshold, can lose tens of thousands in concessions if the loan structure inadvertently creates a co-ownership arrangement. The distinction matters most at settlement, when Revenue NSW confirms eligibility based on the names appearing on the transfer documents.

Using a family loan agreement alongside the Australian Government 5% Deposit Scheme

The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with a deposit of as little as 5 per cent of the property value, with Housing Australia guaranteeing up to 15 per cent to the participating lender. Genuine savings are not strictly required under the scheme, but most participating lenders still assess the source of your deposit and any ongoing liabilities. A family loan that is documented with a formal agreement, including monthly repayments, will be assessed as part of your total debt servicing. If the repayment reduces your borrowing capacity below the amount needed to purchase within the scheme's price caps, you may not qualify. In New South Wales, the cap for regional centres including Riverstone is $1,500,000, but the practical constraint is serviceability, not the cap itself. Consider a buyer borrowing $475,000 to purchase a home at $500,000 with a 5 per cent deposit. If a $50,000 family loan requires monthly repayments of $500, that repayment is deducted from the buyer's surplus income when the lender applies the serviceability buffer. At a serviceability rate of around 6 to 7 per cent, depending on the lender, that $500 monthly commitment reduces borrowing capacity by approximately $80,000 to $90,000. The family loan agreement should specify whether repayments are deferred, no interest, or structured to minimise the monthly obligation during the first few years of the home loan.

Repayment terms that lenders will and will not accept

Lenders prefer family loan agreements with fixed monthly repayments over a defined term, typically matching or shorter than the mortgage term. An agreement that specifies repayments will commence after five years, or only when the property is sold, creates uncertainty and is often treated as a contingent liability with a notional repayment amount applied. No interest loans are acceptable provided the agreement states this explicitly. Lenders will not accept agreements where the repayment obligation is described as "when able" or "as funds allow", because these terms provide no basis for serviceability assessment. Some lenders will accept a family loan agreement with a balloon payment structure, where small monthly payments are made and the balance is repaid in full at a specified future date, but this structure is less common and may limit your choice of participating lender under schemes like the 5% Deposit Scheme. If your family loan agreement includes a clause allowing the lender to forgive the debt at any time, most lenders will treat the arrangement as a gift from the outset, which may suit your circumstances but removes the option to use the funds as a genuine loan.

Documentation lenders require to verify a family loan agreement

You will need a signed family loan agreement that includes the loan amount, the repayment schedule, the interest rate (including if it is zero per cent), the term of the loan, and the consequences of default. The agreement should be witnessed, and in some cases, lenders will ask for it to be prepared or reviewed by a solicitor. You will also need to provide a certified copy of the family member's identification, evidence of where the funds originated, and bank statements showing the transfer of funds into your account. If the family member is borrowing against their own property to lend to you, the lender will want to see the paperwork for that loan as well, because it may create additional complexity in assessing your parents' capacity to support the arrangement long term. For buyers using a family loan agreement to access the Australian Government 5% Deposit Scheme or Help to Buy, Housing Australia and the participating lender may apply additional verification steps, including a statutory declaration from the family member confirming the terms of the loan.

What happens if a family loan agreement is not disclosed to the lender

Failure to disclose a family loan agreement is a breach of your duty to provide accurate information on your home loan application and can result in the lender withdrawing the approval, recalling the loan, or pursuing legal action for fraud. Lenders verify the source of your deposit as part of their responsible lending obligations under the National Consumer Credit Protection Act 2009 (Cth), and any unexplained deposit or transfer of funds will trigger additional questions. If the family loan is discovered after settlement, the lender may reassess your loan and find that you did not meet the serviceability criteria at the time of approval. In that scenario, the lender can require immediate repayment or adjust your loan terms. If you have accessed a government scheme or concession on the basis of information that was incomplete, you may also be required to repay the benefit. The risk is not hypothetical. Lenders now use transaction monitoring and automated deposit screening that flags any large or irregular deposit in the months leading up to your application.

If you are considering a family loan to help with your deposit or purchase costs, the structure matters as much as the amount. Call one of our team or book an appointment at a time that works for you to discuss how a family loan agreement can be documented to support your borrowing capacity and preserve your eligibility for first home buyer concessions.

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