How to help your children buy a home
Property prices across Australia have risen sharply over the past 20 years and the rapid increase has made it a lot harder to get into the property market than in previous generations.
Fortunately, many older Australians have seen their own properties grow in value, and that growth can potentially be used to help their children get into the market.
Here are four ways to help your children buy a home:
These days, it’s becoming more and more common for parents to help their children by using guarantor loans.
A guarantor loan allows a parent to use some of the equity in their own home as a deposit for their children’s new property.
It’s important to note the bank will still look at your children’s borrowing capacity and their ability to pay back the loan. Equally, you should consider whether your children are going to be able to make the repayments, as you are effectively putting down your own home as security and if they default, the lender could look to you.
If you’ve got cash or more liquid assets, then you could give your children a financial gift to use as a deposit for a property.
While giving a gift to your children is a great way to help them, it’s also important to make sure you’re not overextending yourself and leaving yourself in a difficult situation down the track.
It’s also possible to help your children get the money together for a deposit by offering them a loan.
The loan would still need to be paid back and it’s important that the loan agreement is correctly written up. Ensure to be specific on the terms of the loans and the applicable rate of interest.
It’s also worth noting that your children should be able to afford the loan and the required repayments could negatively impact their borrowing capacity.
A less common option might be purchasing a property together. Property co-ownership can at times be tricky, so it’s important to sign a Property Sharing Agreement that outlines who pays the various expenses, who occupies the house and what happens when the property is eventually sold.
Co-ownership can work well when a child has strong borrowing capacity, while the parents have a higher asset base or access to cash.