Help your kids become first home owners

With property prices rising faster than ever in many regions across the country, a lot of young Aussies are turning to Mum and Dad to fulfil the home owner dream.

As prices are rocketing in metropolitan neighbourhoods and even regional areas, the property goals are becoming harder to accomplish and many children are relying more and more on their parents’ generosity to purchase a property.

According to the Australian Financial Review, parental contributions are averaging more than $89,000, an increase of nearly 20 per cent in the past 12 months. In fact, the ‘bank of mum and dad’ has about $34 billion in loans, making it the nation’s ninth-largest residential mortgage lender and bigger than HSBC, AMP and Bank of Queensland, according to data from Digital Finance Analytics.

There are several options to help kids become owners:

Chip in on the deposit

This is the logical option for most parents if they can, and contributing to that deposit is also what most lenders recommend. Not matter how close a Dad can be to his kids, we’ve all heard stories about shattered families due to money misunderstandings.

It’s always better to lay the rules and payment plans in advance, and keep in mind that, when it comes to large families, all children could expect the same generosity.

The guarantor option

Acting as a guarantor home loan, a parent offers up part of their home equity as security to top up the buyer’s cash deposit. It means the buyer only needs a small deposit or sometimes none at all, and avoids paying costly lender’s mortgage insurance (LMI).

Confidence in the child’s ability to make their loan repayments is crucial: if they default, the parent will be liable and their own home may be at risk.

Pop’s loan

Providing a loan through an official loan provider or a private agreement between parent and child is the best option to involve the parent te least possible, as long as the children keep in mind that this assumes they will be able to make their official home repayments as well as paying back the initial loan, and it is important to have honest discussions that clarify how they will manage this, and a timeframe for repayment.

Leave your emergency fund alone!

While children have a life time of work and opportunities ahead, the timeline for senior Aussies is a bit shorter and financial mistakes can result in worse consequences. That’s exactly why parents need to put their financial security first.

An honest conversation can go a long way, especially when the borrower has a complicated trajectory. Most important of all, as hard as it is, parents need to make sure they don’t succumb to external pressures when it comes to lending money to their children.