QLD Purchasing Property from Family & Repaying them instead of bank

[B Gibson]

Good afternoon,

I am after some advice about purchasing property from family.

My partner and I are wanting to purchase his childhood home from his mother (which we have already discussed with her), however, we are unsure how it will all work. All parties agree that everything will be done through contracts. Here is the scenario/proposal:

My partner and I borrow say $100k from the bank to give straight up to his mum
We then pay a fixed amount each week (or whatever agreed frequency) to his mum
Reason: it gives her a solid income for the next 10-15 years and we aren't paying interest to the banks

Is this a fairly simple contract or more complex? It would be a "Tenant's in Common" situation, right? So instead of there being the Crown on the title it would have his mum's name?

Also, would we still be eligible for any FHO grant? It is not a new build, so I know we wouldn't get that full amount any way.

Thank you,

 

[Rob Legat - SBPL]

There are a few issues to pick out here:

1. Borrow $100,000 from the bank

This may be difficult. At that level of borrowing you’re undoubtedly going to have to give some security. Your answers to item 4 below will dictate how the borrowing is handled, but I’m assuming that you’re looking to have yourselves put on title with the mother immediately from your comments about tenants in common.

That will probably mean the bank will want the loan in all three names. So you’re all going to have to qualify for finance.

If you’re not going to end up on title straight away, it will become a much more difficult proposition.

2. The contract

The contract itself can be as simple as you like, but it again depends on whether you want to end up on title straight away. If so, relatively simple. If not, the contract itself is still simple – but it becomes an instalment contract the minute you’re required to pay the mother (a) more than 10% deposit or (b) an amount that isn’t for deposit, under the contract.

Instalment contracts are complex, and are mostly avoided like the plague.

3. Ownership as tenants in common

You can hold in any manner you like, so long as you understand the differences in holding. I would suggest that you and your partner (holding as either tenants in common or joint tenants ‘inter se’ between yourselves) hold as tenants in common with the mother.

I’m not sure where you get the ‘Crown’ being on title.

4. Transfer duty

You’ll pay transfer duty on the share of the property passing from the mother to you two, as a proportion of the value of the property. You will need to get a valuation as the transfer is between related parties, done by someone who is (a) independent of the transaction and (b) competent to assess the value of residential property and able to support their opinion by recent comparable sales. This can be a licensed real estate agent.

5. First home owners grant

First home owners grant will not be available to you in Queensland. It is only available for first home owners who are buying or building a brand new home. Applying for a first home owner grant | Homes and housing | Queensland Government

 

[B Gibson]

Hello,

Thank you for your response.

I’m not sure if it makes a difference, however his mum owns the house outright.
I think what i’m trying to get across is (and it could be completely wrong) is that basically we want to borrow the $100k from the bank as our “home loan” in the banks eyes and give to his mum as the deposit- the house would be the security to the bank for that $100k (just like a normal loan).

We would also continue to pay a fixed amount back to his mum per week.

Is that possible?

The reason is because the house is worth around $700k and we won’t be able to get that amount from the bank (not due to how much we earn, but a contract change with my partner at work), also if we went through the bank then we obviously pay interest. His mum is happy for a fixed income for the next 10-15years.

 

[B Gibson]

There are a few issues to pick out here:

1. Borrow $100,000 from the bank

This may be difficult. At that level of borrowing you’re undoubtedly going to have to give some security. Your answers to item 4 below will dictate how the borrowing is handled, but I’m assuming that you’re looking to have yourselves put on title with the mother immediately from your comments about tenants in common.

That will probably mean the bank will want the loan in all three names. So you’re all going to have to qualify for finance.

If you’re not going to end up on title straight away, it will become a much more difficult proposition.

2. The contract

The contract itself can be as simple as you like, but it again depends on whether you want to end up on title straight away. If so, relatively simple. If not, the contract itself is still simple – but it becomes an instalment contract the minute you’re required to pay the mother (a) more than 10% deposit or (b) an amount that isn’t for deposit, under the contract.

Instalment contracts are complex, and are mostly avoided like the plague.

3. Ownership as tenants in common

You can hold in any manner you like, so long as you understand the differences in holding. I would suggest that you and your partner (holding as either tenants in common or joint tenants ‘inter se’ between yourselves) hold as tenants in common with the mother.

I’m not sure where you get the ‘Crown’ being on title.

4. Transfer duty

You’ll pay transfer duty on the share of the property passing from the mother to you two, as a proportion of the value of the property. You will need to get a valuation as the transfer is between related parties, done by someone who is (a) independent of the transaction and (b) competent to assess the value of residential property and able to support their opinion by recent comparable sales. This can be a licensed real estate agent.

5. First home owners grant

First home owners grant will not be available to you in Queensland. It is only available for first home owners who are buying or building a brand new home. Applying for a first home owner grant | Homes and housing | Queensland Government

Hello,

Thank you for your response.

I’m not sure if it makes a difference, however his mum owns the house outright.
I think what i’m trying to get across is (and it could be completely wrong) is that basically we want to borrow the $100k from the bank as our “home loan” in the banks eyes and give to his mum as the deposit- the house would be the security to the bank for that $100k (just like a normal loan).

We would also continue to pay a fixed amount back to his mum per week.

Is that possible?

The reason is because the house is worth around $700k and we won’t be able to get that amount from the bank (not due to how much we earn, but a contract change with my partner at work), also if we went through the bank then we obviously pay interest. His mum is happy for a fixed income for the next 10-15years.

#3A moment ago

 

[Rod]

It is possible.

One of the issues to work out is when the title changes hands. Is it on payment of the $100k, or sometime later, or when the full price has been paid.

This then affects the way an agreement/contract is prepared and affects whether his mum needs to also be on the mortgage to the bank. The bank will want a mortgage unless you have other assets they can secure. If the house is transferred to your names then his mum doesn't need to be on the mortgage. If the house title stays in her name, she will have to also sign the mortgage.

You will need a lawyer to prepare the contract, and his mum should get her own independent legal advice.

 

[Rob Legat - SBPL]

Lawyers don’t have to prepare the contract in Queensland, but you’d be wise to get it done properly by one. If you mother remains on title in any way, she’d be best getting some independent advice - and may be required to do so by the bank in certain circumstances. The difficulty becomes whether the mother is staying as the registered proprietor on the title in some way.

If she is not, I’d suggest she needs to take some form of security against the title to follow the bank (most probably a second mortgage). This would require a priority arrangement between her and the bank as to the levels of their respective advances.

Also be aware that on a $700,000 house, you’ll be up for up to around $17,500 in transfer duty if you declare it as your principal place of residence. Add another $7,000 if not. At that level, you get no discount for first home - it cuts out at $550,000.