If you’ve been thinking about helping your child buy their first home, you’re not alone. According to Digital Finance Analytics as much as 60% of first home buyers rely on their parents or grandparents to get into the property market (increasingly known as the Bank of Mum and Dad). This might be by helping them with some money for their deposit or ongoing repayments or by acting as a guarantor.
How can parents help their child buy a house?
Rather than waiting until their estate transfers to their children, lots of Australians parents are instead choosing to help their adult children buy their first homes now. This helps your kids begin to grow their assets at a younger age, giving them a head start and ideally providing them with a strong base with which to grow their wealth.
Do your own due diligence
If you are going to be a guarantor on a loan, which means using your own property or investments as security, make sure you do your own due diligence too. Consider the ramifications of helping your child/ren and their partners buy property. This could be missed payments through to repossession. Something that you need to think carefully about is whether you child has a partner and the potential long-term impacts on the relationship breaking down.
If you are looking to borrow money to buy other investments, even though you aren’t paying the mortgage, the lender will still consider this your liability too.
Work out what you can afford
Once you’ve considered the pros and the cons it’s important to chat with a Financial Advisor and determine what capital you can contribute to helping your children without it negatively impacting your own situation. There may be a few things you need to ensure you’ve done first, before helping your kids such as:
- Paying off your own mortgage and other debt
- Boosting your retirement savings/investments
- Owning other investment properties outright
- Having a buffer of cash and financial comfort
How to help your kids buy a house
You can support your children through a few different ways when it comes to buying property. The main ways are:
- Gift them the money
- Loan them the money
- Become a guarantor
- Buy the property together
To read more on some of the implications of helping in these different ways, click here. The team at Entourage Legal give us a full run down on what you need to bear in mind.
Depending on what you decide you’ll need to ensure you get legal advice upfront to protect your interests, those of your kids and to make sure everyone understands what happens when the property is sold. There may also be implications as to what grants may or may not be available and what duties or taxes are payable by all parties if you help your children to buy.
Get in touch to have a chat about what’s involved. With an expert finance, legal and financial planning team on hand, Entourage is your place to go to get advice on how you can help your kids buy a house.