Is the Family Deposit a Gift or a Loan?
A family deposit is either a gift or a loan. What a gift letter must say, what changes if it is repayable, and what a lender asks for to prove it.
Business Owners Hub
Gifted Deposit · Gift Letter · Low Doc Home Loan
A deposit from family is either a gift or a loan, and a funder treats those two things very differently. Here is what makes it a gift, what a gift letter has to say, and what happens when the money genuinely has to be paid back.
Quick Answer
Family money put toward a deposit is one of two things. If it is unconditional, non-repayable and non-refundable, it is a gift and it counts as your contribution on a One Doc home loan. If it has to be paid back, it is a liability, assessed against your serviceability assessment.
Also called: alt doc home loan, low doc home loan, self-employed home loan.
How much deposit do you need for a low doc home loan?
A low doc home loan asks for a larger deposit than a full-doc application, not for lighter paperwork in place of one. The income evidence is simpler, and the funder prices that difference through the loan to value ratio rather than through more documents.
In practical terms, most non-bank and tier-2 low doc lending on standard residential security sits at or under an 80 per cent loan to value ratio, which means a contribution of roughly 20 per cent plus purchase costs. Tighter tiers, unusual security, a shorter ABN history or a rural postcode commonly sit nearer 70 per cent, so the contribution rises to around 30 per cent. Those bands are indicative practitioner ranges rather than published policy, and they vary by lender, by property type and by how the income is evidenced.
What matters more than the number is this: the size of the deposit sets which lenders will look at the file, and the source of the deposit sets whether they stay looking. A self-employed buyer can have the full contribution ready and still stall the application because the money arrived last week from a relative and nobody has characterised it. That is the failure mode this post exists to fix.
Where the contribution has come out of the business rather than out of a personal account, the read is different again, and it is covered separately in our guide to funding a deposit from business cash. This post is about the other common source: money from family.
Is a deposit from family a gift or a loan?
A deposit from family is a gift only if it is unconditional, non-repayable, non-refundable. Those three words are the whole test. If any of them fails, the money is not a gift in assessment terms, whatever the family has agreed between themselves, and it will be read as a debt.
This is not a technicality invented by lenders. A repayable advance is a claim on your future income, and a funder assessing whether you can carry a mortgage has to know about every claim on that income. An unconditional gift creates no claim, which is why it can sit in the deposit column. Everything else in this post follows from that single distinction.
Reads as a gift
- No repayment expected, now or later
- No interest, no schedule, no conditions
- No security taken over the property
- Given by a person, in their own name
- Signed letter from the person giving it
- Funds already landed in your account
Reads as a loan
- Repayable, even informally or "one day"
- Repayable if you sell or refinance
- The giver wants a share of the property
- Advanced by a company or a trust
- Letter that hedges on repayment
- Funds still sitting somewhere else
The line between those two columns is not about how much anyone trusts anyone. It is about whether an obligation exists. If a parent says the money never has to come back, that is a gift. If a parent says the money comes back when the business has a good year, that is a loan with a soft repayment date, and it belongs in the right-hand column.
A third arrangement sits behind both of these and is worth naming early. Where a relative is not handing over cash at all but offering their own property to support the borrowing, that is neither a gift nor a family loan, and the exposure runs on completely different rules. That case is set out in using someone else's property as security.
What is a gift letter and who has to sign it?
A gift letter is a short signed statement from the person providing the money, confirming the amount, confirming who it is going to, and confirming that it does not have to be repaid. It is signed by the giver, not by the borrower, because the person making the statement is the person giving up the claim. Where more than one person owns the funds, both sign.
A gift letter is a statement of fact, not a favour. That framing matters, because it changes how the letter gets written. A letter drafted as a kindness tends to hedge, and hedged letters are what stall files. "We do not expect it back at this stage" is not the same sentence as "this is a gift and it is not repayable". The second sentence is the one that does the work.
What the letter has to contain
- The amount, in figures. Matching the sum that actually moves, not a rounded approximation of it.
- The full name of the giver and of the recipient. Matching the names on the bank statements and on the contract of sale.
- The relationship between them. One line is enough.
- An express statement that the money is a gift and is not repayable. No conditions, no timing, no "unless".
- A statement that the giver takes no interest in the property. No share, no charge, no caveat.
- The signature and the date. Dated on or before the day the funds move.
When a statutory declaration gets asked for as well
Where the amount is large, where the relationship is less direct, or where the giver has been recently involved in the borrower's business, a funder may ask for a statutory declaration alongside the letter. That is a step up in formality rather than a red flag, and it is worth knowing about early so it does not land on you the week before settlement.
One integrity point worth stating plainly, because it comes up. Backdating a letter to make funds look older than they are is not a paperwork shortcut, it is a false statement on a credit application, and the dates on the letter are checked against the dates on the statements. If the timing is awkward, disclose it. An awkward but honest timeline is assessable. A tidy but wrong one is not.
What happens if the family money has to be paid back?
If the family money has to be paid back, it is a liability, and the assessment changes in two places at once. It stops counting as your deposit contribution, and it starts counting against your capacity as a commitment. That double effect is the part almost nobody explains, and it is why a repayable advance can quietly cost you more borrowing room than the amount itself.
This is the question the ranking pages in this space do not answer. They treat "not a loan" as a box to tick and stop there. In reality the honest answer is often that it is a loan, and a self-employed borrower needs to know what that actually does to the file rather than being told the box has to be ticked a particular way.
| What the funder checks | If it is a gift | If it is a repayable family loan |
|---|---|---|
| What the funder calls it | Deposit contribution | A related party debt |
| Effect on your deposit | ✓ Counts in full toward the contribution | ✗ Does not count at all |
| Effect on serviceability | No commitment to assess | Assessed as a commitment alongside business and personal debt |
| Who signs what | The giver signs a gift letter | The borrower discloses the amount and the repayment terms |
| Evidence typically required | Letter, then proof the funds landed and stayed | The amount, the repayment expectation, and how it is funded |
| Effect on the maximum loan | Neutral, the contribution simply lowers the loan to value ratio | Reduces capacity twice, once on deposit and once on servicing |
| Where it commonly stalls | A letter that hedges on repayment | Being described as a gift on the file |
A repayable family advance is, in substance, related party lending, and it behaves like any other private lending arrangement in the assessment even though no licensed lender is involved. Disclosing it does not sink an application. Hiding it does, because it surfaces in the statements anyway and the file then has a credibility problem as well as a servicing one. An undisclosed inflow is a bigger issue than the inflow itself.
Does money from your own company or trust count as a gift?
Money from your own company is not a gift. A gift moves value from one party to another, and a distribution or a director loan from an entity you control does not do that, because you were already behind the money. It is your own funds arriving by a different route, and it is assessed on that basis.
This is the point where self-employed applications diverge most sharply from salaried ones, and it is the point the general gifted-deposit guides skip entirely. A payslip borrower receiving a parental gift has one story to tell. A business owner receiving a family advance usually has three moving parts: the personal account, the business account, and a director loan account that records what has moved between them. All three get read.
Two situations to be precise about. If a family member is also a shareholder or a beneficiary, an amount described as a gift may in fact be a distribution, and a funder will want to know which. And if money passes from a relative into the business and then out to you personally, the file has to explain both legs, not just the one that lands in your savings account. Neither situation is a problem. Both are a problem if the file only shows half of it.
Where the family money sits inside a trust rather than a company, the question moves again, because a trustee can only do what the deed permits and a distribution is not the same instrument as a gift. The document chain a funder reads in that case is set out in when a trust or company holds the property.
Where a family member is standing behind the debt rather than funding the deposit, that is a different instrument again with different consequences, and it is covered in our note on how a business guarantee reads at the home loan desk.
What does a lender ask for to prove where the deposit came from?
A funder asks for a trail, not a total. The trail matters more than the balance, because a closing balance on the day of application says nothing about whether the money is yours to use. What lenders actually look at first is the movement into the account, and only then whether the paperwork explains that movement.
The proof pack for a family-funded deposit on an alt doc home loan is short, and it is broadly the same set across non-bank lenders and tier-2 specialists:
- The gift letter. Signed and dated by the giver, naming the amount, naming the recipient, and stating in plain words that it is not repayable.
- Statements showing the funds arrive. The account in your name, showing the deposit landing and staying, typically read across a 3 month window, indicative and varies by lender.
- Statements showing the funds leave the giver. Not always requested, commonly requested where the amount is large relative to the purchase.
- A statutory declaration. Where the funder requires it, usually on larger amounts or a less direct relationship.
- An explanation of any business leg. Where the money touched a business account or a director loan account on the way through.
- Disclosure of anything repayable. Amount and repayment expectation, in writing, before the assessment rather than after it.
Two applications, same contribution, same buyer profile. In the first, the funds land in the buyer's own account well before the application, the letter says the money is a gift and is not repayable, and the statements show it arriving and sitting.
In the second, the funds arrive days before submission from an account the file has not introduced, and the letter says the family "do not need it back for the foreseeable future". The first is assessable on the documents. The second generates a request for more information, and by the time it is answered the finance clause is close.
Neither buyer did anything wrong. One of them had the conversation early. See how the same discipline applies when the deposit comes from business cash, and how the assessment reads on an investment purchase.
The Australian Government's Treasury maintains an overview of home ownership support measures, which sets out the schemes that can sit alongside a family contribution and the conditions attached to each. That matters here because scheme funds carry their own evidence requirements and their own eligibility tests, and they are assessed separately from the family money rather than as part of it.
For the structural detail on how a simplified income declaration is assessed in the first place, see the One Doc home loan glossary entry and the Business Owners Hub. Where the purchase is a commercial or investment property rather than a home, start at the Property Lending Hub instead.
A family deposit is a gift only when it is unconditional, non-repayable and non-refundable, and a gift letter is what puts that on the record. If it has to be paid back it is a liability: it stops counting toward your contribution and it starts counting against your capacity. Money from your own company is a third thing again, assessed as your own funds arriving by another route. In every version, the test is whether the movement of the money and the paperwork describing it tell the same story.
Key takeaway: Decide whether the family money is a gift or a loan before it moves, then document the answer you actually chose.Frequently Asked Questions
Most funders want to see gifted funds landed in an account in your name and held there across a 3 month window, indicative and varies by lender. Money that arrives days before submission is not disqualified, but it triggers a request for more information at the worst possible point in the timetable. The practical move is to have the funds transferred and the letter signed before the contract goes unconditional, not after, so the serviceability assessment and the statements agree.
The deposit criteria that apply to a self-employed home loan cover three things: how much you are contributing, where the money came from, and whether any of it has to be paid back. A funder wants the source of every dollar traced, not just the closing balance on the day of application, and it wants any repayable amount disclosed so it can be assessed against serviceability assessment. Funds that have moved through a business account are read differently again, which is covered in the guide to funding a deposit from business cash.
You can get a home loan when self-employed using family money, provided the money is properly characterised and properly evidenced. If it is unconditional, non-repayable and non-refundable it is a gift, and a signed gift letter plus proof the funds have landed is normally what a funder asks for. If it has to be paid back, it is a liability, assessed as a commitment rather than counted as your deposit contribution. The income side of the assessment is explained in the simplified income declaration entry.
A gift letter is rarely enough on its own, because it is a statement about the money rather than proof the money exists. A funder normally wants the letter alongside evidence that the funds landed in an account in your name and sat there, and some ask for a statutory declaration where the amount is large or the relationship is less direct. Where the gift comes from an entity you control, expect the file to be read more closely. See the alt doc home loan entry for the wider evidence set.
Paying back a gifted deposit later is only clean where there was genuinely no obligation to do it. If an expectation of repayment existed when the letter was signed, the money was never a gift, and a side arrangement recording that expectation makes the letter false rather than optimistic. A voluntary repayment years afterwards, with no prior agreement, is a separate transaction. If repayment is genuinely intended, say so up front and have it assessed as related party lending and treated under the private lending glossary entry.
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