In the process of brokering home loans in our Perth office, we have noticed a trend that we really like: More and more first-home buyers are receiving assistance from their parents in coming up with the down payment.
In today’s ever-changing economy, home ownership has become more difficult for many. Even with the First Home Owners Grant offered by the WA Government, times can be challenging for first-home buyers. In previous economic conditions, rents would be low enough that young couples could be satisfied to merely rent until they could afford to buy their own home.
Now, with rents being nearly equivalent to the monthly cost of owning a home, it no longer makes sense for young couples to rent someone else’s home, essentially making someone else’s mortgage payments for them.
Here are three ways parents can help their kids obtain first-home loans.
Parents who can spare the money and want to see their kids do well can simply donate the cost of a down payment to their kids. This makes it a lot easier on the kids who don’t have to worry about paying it back. It also helps the parents know that their kids won’t be asking to move back home any time soon.
A caveat: always make sure to document your gift. If you don’t, your kids will get charged higher interest by the lender because the lender will consider it a loan that requires repayment, making your kid a higher risk to default.
You can also loan the money to your son or daughter. The advantage for you is that you get your money back. The advantage for your kid is that they get the loan for a much lower interest rate, if any. You will need to document the loan, especially, for the lender who will require documentation.
If you don’t have any money to spare, you can guarantee the loan. This allows your kid to leverage your equity to guarantee their loan. The downside to this strategy is that it can affect your borrowing capacity and may even have an effect on your retirement lifestyle.
The Benevolent Parent
Call (08) 9472 9766 for more information about helping your kids.