If you’re a parent looking for a way to help your kids buy their first home, you’re not alone. First home buyers are relying upon support from their parents to help them invest in a rising property market.
There are several approaches you can take, but the first step is to understand why your kids are struggling. This will help you avoid a situation where your assets are at risk and, more importantly, it will help you choose the best approach for all parties. If their income is too low to service the loan, helping them out may only expose you both to significant financial risk.
But if it’s simply a case of struggling to save for a deposit while paying high rent, and you’re confident they can service the loan, then it might make sense to help them out. The sooner they get into the property market, the sooner they’ll be building equity in their homes—and that’s a much better option than always playing catch-up on a 10% deposit target that’s rising with the market.
While most parents would love to simply give their kids the full deposit amount, not everyone can afford it. So here are a few other options for helping your kids acquire their first home.
1. Provide the security for a deposit bond
Put the equity in your home to good use as security for a deposit bond. A deposit bond will ensure your kids won’t need to pay anything to the seller until the property settlement date. If they’re buying off the plan, a deposit bond could give them 18–24 additional months to save up their full deposit amount—and that amount is a fixed target that won’t keep rising when the market does. (Not familiar with deposit bonds? Learn more.)
2. Gift them the deposit bond premium
Give your kids an extra head start by helping out with the premium for their deposit bond. This one-time, upfront charge is a tiny fraction of the cash deposit, so it’s more affordable for you, and your kids will still need to practise financial discipline as they save toward paying their deferred deposit.
3. Offer low-rent accommodation
If you’ve got ample space in your own home and you get along well with your kids (which is not always a given!), then you can help them out by offering low-rent accommodation. This will free up more of their income to save for that deposit or get ahead while their home is being built.
4. Use your home’s equity for a family guarantee*
Many lenders offer a family guarantee option, where some of the equity in your home is used as additional security for your kids’ loan. This may bring down the loan to value ratio below 80%, so your kids may avoid paying mortgage insurance*. As the property value rises and the loan gets paid down to bring your kids below the threshold, you can request to have your home released from the guarantee by refinancing their home loan.
5. Work with a mortgage broker to get the best deal*
Look for a mortgage broker who takes the time to really understand your situation and explore your options.
Each of these approaches will help your kids buy their first home sooner without overstretching your own finances to fund a generous cash gift. But, more importantly, these approaches all encourage your kids to practise the art of money management and gain an investment mindset to secure their own financial futures.
Ready to take the next step? Talk to First Class Lifestyle today.
*Please note that this is subject to your personal and financial circumstances and may not be suitable for you.
Disclaimer: The information contained in this article is for information purposes only and cannot be relied upon. You should seek professional advice tailored to your specific personal and financial circumstances.