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Mr Turnbull received a lot of backlash when he asked ‘rich parents’ to shell out money to help their children buy a home. Nonetheless, with over one-third young adults taking more than five years to save a deposit, turning to their parents for help remains a popular choice.

On their part, despite many baby boomers still struggling to pay off their mortgage, many are willing to help their kids climb the first rung of the property ladder – through financial as well as non-financial support.

 
Parent help children for home loan
 

In the face of house prices soaring as they are, new research from Digital Finance Analytics, based on extensive household surveys, revealed that 54 percent of first homebuyers rely on help from their parents to purchase their home. As per the study, the average sum extended by ‘mum and dad’ to help their kids buy a house is $85,380.

Besides, first home buyers can also take advantage of the generous first home owner grants on offer in their State. Check your eligibility here.


Helping your child financially

There are many ways in which you can fund your kids’ property. Below is an overview of the most common ones:
 

Gifting cash as deposit

Gifting cash as deposit is one of the easiest ways to help your children achieve their property dream. This will ensure that your child not only gets a better rate on their mortgage but also save them from paying thousands as the premium for lenders mortgage insurance (LMI).

(Most banks require you to pay LMI if you are borrowing more than 80 percent of the property’s price. Learn more here.)

Good to know:

  • If you choose to gift money to your child as a deposit, do check with the IRS for any tax implications.
  • Gifting above a threshold could affect your Centrelink payment. Check this page for more guidance.
  • Check with your lender or mortgage broker for any restrictions. Many lenders require the borrower to put down at least five percent deposit from their pocket or show proof of genuine savings for at least three months.

The good part about gifting cash is there are minimal tax implications for all the parties involved. The only downside is that parents cannot claim the money back from their child at a later point in time.

Another option is to extend an interest-free loan to your child. Considering that circumstances change, this could be a wiser option, but it involves some costs in setting up the right legal documents.

Problems can arise if your child is buying with a partner, because if they decide to part ways in the future, there is no way you can ask their partner to return the funds, unless you have a legal document in place. Of course, it doesn’t have to be a complicated loan agreement but a straightforward legal document, laying down clear repayment terms, drawn by a professional lawyer.
 

Acting guarantor on your child’s home loan

As a guarantor, you can use the equity in your property as additional security for your child’s home loan. A guarantor loan can help your child borrow more and also prevent them from paying LMI, saving thousands of dollars.

Essentially, by going guarantor on your child’s mortgage, you promise the bank to pay off the debt in case your child is unable to. But many people have lost their family homes because they did not think the decision through. Thus, it is essential to take legal and financial advice before you decide to turn guarantor. You must also keep in mind that signing up as a guarantor will significantly reduce your borrowing capacity in the future.

That being said, family guarantee loans remain popular with youngsters to finance their homes with a low deposit. As a parent, by providing a capped guarantee or using an investment property to secure the loan, you can reduce your risk to some extent.
 

Buying a house together

Many parents choose to buy a property jointly with their children. Here, both the parties own the house, and the child can buy the parents out later to own the property in entirety.

While this is a great way to get your child started, you must remember you are equally responsible for paying off the mortgage along with your child – whether they default or not.

In case you are buying in partnership with your child, make sure you have a common game plan for the future. If one of the parties decides to sell the house or use the equity in the home for another purpose such as taking a holiday, it can lead to complications and soured relations.

Another reason that makes this option less popular is the fact that your child cannot claim FHOG if you already own a home.
 

Helping beyond money

When you decide to help your child monetarily to fund their home purchase, it is important to consider the tax implications and other complexities – such as what would happen if your child falls sick, loses a job or separates from her partner.

Apart from shelling out money to boost their finances, as parents, you can also help your child by letting them live with you in the family home longer. According to University of Melbourne’s Household, Income and Labour Dynamics in Australia survey, leaving home before 18 can put your children in worse financial situation. The report shows men ended up about $184,877 less wealthy, and women $106,977, compared to those who waited until 21-24 to leave their parents’ home. The report further reveals that those who left their parents’ nest between 21-24 years of age end up finding themselves $185,000 richer than those who choose to leave early or too late.

Besides, the most important thing you can do for your children, especially if you have an experience of the property market, is to encourage them to brush up their knowledge and guide them to experts, to ensure they make educated investment decisions. In case you are looking for a verified mortgage broker in your vicinity, you can find one here.

 

By Vidhu Bajaj,
HashChing Content Writer

 

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