How a gift or loan from your parents plays a role in your first home purchase

Almost one in five (17%) Aussie first home buyers now relies on the Bank of Mum and Dad (BOMAD) to purchase their first home^. This figure has been steadily rising in recent years as property prices soar to 8 to 10 times the typical household income. But how does such a gift from your parents get handled when you apply for a home loan?

How do lenders view the Bank of Mum and Dad?

Lenders are well-equipped to lend to those buying with help from their parents. In fact, gifts and loans are commonplace in first home buyer applications nowadays. Some parents give a lump sum, either as a gift or an early inheritance, while others loan the money to be repaid over time. Either way, lenders generally treat funds from parents as a contribution towards a home deposit and lend accordingly. 

In some cases, a contribution from your parents can reduce the cost of your home loan, too. That’s because you may be borrowing at a lower loan-to-value ratio (LVR). If the contribution means your deposit is 20% or more of the property’s value, you can avoid paying LMI, and you may even be able to access lower interest rates due to the loan being lower risk to the Bank.

Is it a gift or a loan?

The distinction between gifts and loans is critical. Gifts are given without expectation of being repaid. Loans, however, mean a parent is expecting to be repaid – and some may even charge interest. This is an important difference from a lender’s perspective, as it will impact how much you can borrow. If you owe your parents $500 per month in repayments, this could eat into your ability to service a home loan.

Some lenders will request that your parents sign a gift letter to confirm that the funds are given without expectation of repayment.

Evidence of genuine savings

A deposit is a significant piece of the first home buyer puzzle, but a gift from Mum and Dad won’t necessarily tick all the boxes for a lender. Lenders often want to see evidence that you can prudently set money aside each month. This is known as ‘genuine savings’. This can be demonstrated by holding onto funds for a consecutive period of 3 months, or showing that you’re able to build up savings over time with regular deposits. In some cases, lenders will accept rental history as evidence of your ability to meet regular expenses.

Income and cashflow is still critical

Primarily, a gift from your parents increases your purchasing power. This means it can change how much you can spend in total on your home purchase. Your borrowing power – how much you can borrow from a bank – is largely determined by your income and expenses. Even with a hefty deposit from the Bank of Mum and Dad, you still need to be able to service the amount you do borrow. You’ll be guided through this when you apply for your pre-approval, either through a lender or a mortgage broker, but it’s worth bearing in mind that you can’t automatically buy a property just because you have 20% of its value as a deposit.

From knowing where to start to understanding the home loan process, settlement and costs, we're here to support you. For more information on buying your first home visit: www.bendigobank.com.au/personal/home-loans/first-home/.

^ Sources: https://www.finder.com.au/insights/first-home-buyer-report-2025#the-bank-of-mum-and-dad