Looking to help your kids into their first home? If you think the time is right for the kids to leave the nest and follow through the great Australian dream of homeownership, then by all means, read through.
The proportion of young adult Australians choosing to stay home is currently on the rise based on date recorded by the Australian Bureau of Statistics (ABS) in 2012/13. If you’re one of many Australians who owns a property and has a hefty equity, you can help your kids move into a home of their own.
Acting as a guarantor. Acting as a guarantor is a surefire way for parents to utilize their own home as security when assisting their children in home purchase and mortgage requirement. if the kids don’t have much money of their own, it’s a viable option to get a decent deposit to avoid paying extra for Lender’s Mortgage Insurance.
What are the risks? When you (the parent) act as a guarantor for your child, the lender will arrange for a section of the mortgage to be secured on your property. If your child doesn’t keep up with their repayments, the lender will have the option to recuperate the debt from both properties.
This is the risk you need to be very clear about because if the loan isn’t payments and the lender can’t recover their costs from selling your child’s house, you may be obligated to sell your home as well.
Helping your kids enter the market
Here’s what you can do when preparing your kids for home ownership.
Teach them to save. Teenagers splurge a lot on things that they don’t need. Talk to them about opening a savings account and give them a system of money management. Evaluate where your child is at, and advise how they can work to reach their financial goals.
Explain the details. Terms such as ‘mortgage insurance’ or ‘stamp duty’ may be familiar to homeowners, but a first-time buyer may not have an idea what they mean. Take the time explaining basics and find simple explanations to hasten the process. Ensure that your child understands the initial payments that are necessary for a house purchase.
Highlight homeownership costs. Paying a house deposit is one of the biggest financial commitment your child will make in their lifetime. However, the initial outlay is only a part of the story. There’s also the council rates, corporate fees, renovation costs and moving costs. That said, having the deposit alone is not usually enough, so it’s a great idea to bring this up with your child early on.
The bottom line
Entering into a parent-child home purchase arrangement can put tension even with the strongest relationship. Take note that being a guarantor means that it’s you that will carry the bulk of all the risk. Plan thoroughly whether there might be a better way, or write up ground rules for both parties to stick to.
With the right advice and assistance from your loan provider, your child can move into their first home or even the property ladder quickly.