Family Pledges are a very good, but sometimes complicated way of helping young couples into their new home, particularly if they have limited savings.
This strategy is best explained by way of illustration: (hope it makes the point, see below ).
familiy-pledge
Essentially, where there is sufficient equity in the parents’ home, they are able to pledge a portion of their home’s security to their childrens’ purchase.
In this example the applicant wants to purchase a home for $600K, they have $25K saved which they need to use to reburbish the house they wish to buy. The parents pledge $150K of their security towards the purchase, making the overall security now 750K (600 + 150). The 600K loan they wish to borrow now becomes 80% (LVR 80%) of the overall security held for this purchase.
Please note: The family pledge is not an exchange of cash or a refundable gift… it is a second mortgage on part of the parent’s home.