If you have kids then there’s every chance that you’ve either thought long and hard about when their time comes to enter the property market… or you’ve tried to avoid thinking about it all together.
The Bank of Mum & Dad has become a term that is often thrown around for comical effect, yet the reality for so many Australians is far from amusing. Parents wanting nothing but the best for their children will likely feel compelled to give whatever they can to help them achieve that coveted Australian dream. However, as much as we might like to, we’re hardly going to open our wallets and hand over $50,000 for a housing deposit.
All is not lost though. As a parent it can often be impossible to just sit by the sidelines when our children are in need of help, and within this day and age, it’s not unreasonable to expect that they will be in need at some point. So what can we do? Let’s take a look at what options are available to help your kids get a foot on the property ladder.
This is one of the most popular ways a parent can officially help their child enter the property market. Guarantor loans allow parents to act as a financial buffer in the eyes of loan providers to give their children a safeguard against the possibility of defaulting on payments.
Guarantor loans are also a way for parents to offer up some equity in the assistance of the loan your child takes out. This can be done either by way of a financial contribution, or through the equity of certain assets – often a mortgage. So for instance, if your son has saved a total of $25,000 but still needs an additional $30,000 to be approved for a home loan, then you could agree to act as guarantor and offer up the extra $30,000 through the equity of your own home in order for him to be able to qualify.
Acting as guarantor is generally the most common means of offering financial support to one’s children as it doesn’t require you to go out of pocket. You definitely can, but you don’t need to. The main issue with guarantor loans however, is when things go wrong. If, for whatever reason your child defaults on that loan, guess who ends up paying footing the bill? You. And that’s all without the benefit of home ownership rights.
So, if you’re thinking about going down this road to help out your child, make sure you consider the possible consequences and have a veeeeeeeery serious talk with them before making any rash decisions.
I’m sure you would give your children the world if you had the means. Everyone wants the best for their kids and no one wants them to suffer unnecessarily. However, when living in a world that often revolves around money, it can be hard to decide how much to give up for your children when they find themselves in need.
Making the decision to gift your children a vast sum of money to go towards a home loan is a serious commitment and one that shouldn’t be given out lightly. What is your child like with money? Do they have bad spending habits? Are they good at saving? These are important questions to consider before handing out any amount. You might love them dearly, but how would you feel if your enormous financial contribution to their home loan was blown on a 2 week holiday to Barcelona?
So why not make them a deal? Tell them that once they reach a certain goal and manage to save X amount of money, you’ll match it. This way, they have to put in the hard work before getting a single cent from you. The value of money becomes much more apparent when serious work needs to be put in to earn it.
And at the end of the day, it doesn’t even need to be a ‘gift’. If your child is financially comfortable, consider it a loan. This way they have the benefit of getting into the property market a lot quicker and easier than without your help, and you get your contribution back… some day… we hope.
This is a slightly less conventional path to take but is equally effective and for some parents might be the best option of them all. Buying a property with your child might seem like a peculiar idea on the face of it but can actually be a completely legitimate option. Not only will it allow them to get a foot onto the property ladder, but you won’t be losing out since every cent you put towards helping them will be a financial investment.
Now, this clearly isn’t going to be the best option for every child since more often than not, buying your own home is a way to establish a sense of independence, and that’s a little hard to do when mum owns half of your property. However, many see this as a short term solution whereby the child eventually buys out their parent’s half of the home, or both parties mutually agree to sell once they’ve accrued enough of a return on their investment. Before you enter into a joint venture though, you can’t afford to buy any property without first having it looked over by a professional house inspector. Things could get messy when you and you child start arguing over expensive repairs costs.
When all is said and done, however you decide to help out your children is entirely up to you and the circumstances you’re in. Of course, it’s only natural that you’d want to go above and beyond but sometimes it’s just not that easy. So just make sure that you go through all the options and work out what’s best for you and your child. After all, we don’t want to Bank of Mum and Dad to go bankrupt.