How can I help my child buy a house? It’s a good question—and one that many parents and grandparents have pondered over; especially nowadays with exorbitant house prices. There are also tougher lending rules and many do not have nearly enough savings for the high deposit needed. More young adults (kids) are needing their parents or grandparents to assist them in getting at least one foot on the home ownership ladder.
Sure, there are various government grants for first home owners to help them buy a house, but many first home buyers’ deposits fall short due to high real estate prices and insufficient savings.
Additional Disappointment for First Home Buyers
In the wake of the coronavirus pandemic and resulting economic downturn; first homebuyers face an even steeper uphill battle to save enough deposit to buy a house. Statistics reveal that they may need to wait an additional year or more, since many have lost their jobs or had their incomes slashed due to the virus. Sadly, without some financial assistance from family; many young people may never realise the great Australian dream of owning a home. Reality is that this has been the case for many millennials for almost a decade now.
If by chance, prices do fall in the coming months thereby off-setting some of the losses; scrounging up some sort of deposit will still be difficult for potential new home buyers, now with noticeably lower incomes.
Affordable Homes Offer a Glimmer of Hope
Despite tougher times, there are affordable homes within the grasp of younger buyers; especially if they are first home buyers. They may need to adjust their aim slightly and buy a house that is perhaps a bit cheaper or smaller in size to get a foot in.
UPDATE: Scott Morrison announced that there will be a new $25,000 builder stimulus payment payable when building a new home or doing renovations. This effectively means that eligible first home buyers can get up to $40,000 in government grants.
*Terms and conditions apply
The best type of starter home options includes the following:
1. Turnkey house and land packages / new turnkey homes (these are ideal options for anyone that qualifies for the first home owners grant)
2. Regional areas, outer suburbs or locations that are away from inner city fringes
3. homes that need small improvements, renovations, or a little TLC.
4. Cheaper or smaller properties
Competitive Financing Positives:
• Although financing options are generally tougher; choosing a cheaper property may increase the chances of successfully obtaining a mortgage, since the amount required is less than originally anticipated.
• Small lenders, including non-bank lenders offering mortgages under 3% in competition with the big banks (cheaper / competitive home loans)
Hervey Bay- A Great Choice for First Home Buyers
Hervey Bay is considered a high growth corridor with further population increases anticipated as even more people relocate, deciding to call the beautiful coastal city home. Huntingdale Woods (Urangan) offers a serene lifestyle option, and centrally located Flamingo Park (Kawungan) are two of Hervey Bay’s best kept secrets featuring a range of stunning brand-new turnkey house and land packages for sale. A turnkey package includes fencing, turfing & window coverings. First Home Buyers Grant is available— simply move in with your family and enjoy Hervey Bay’s carefree, tropical lifestyle.
Hervey Bay Turnkey House and Land Packages – homes range in price from $330K to $360K.
Getting Off the Proverbial Rental Wheel
There are key factors preventing millenniums, Y-Gen and older adult-children from entering the property market. These are surging property prices and an inadequate deposit. Typically, meeting mortgage repayments isn’t an issue since they have always paid high rental amounts. Despite government assistance such as First Homeowner’s Grant, many simply cannot get off the proverbial rental wheel without additional family help.
That’s why; it’s now common for parents to investigate different ways to help their children get into the property market, thereby attaining a good quality asset and/or financial security.
The How to Help Your Child Buy a House Must-Have Discussions
The first thing parents can do to help their adult kids to buy a house is to speak to a financial advisor about their own finances, how much capital to provide and what methods of helping their family are their best options.
Important financial goals and factors which should be considered before any parents helping a child to buy a house include: paying off their own mortgage, being financially independent or owning any additional assets outright.
It is important to at least having adequate money for a rainy day and/or being financially comfortable before considering helping. They may like to also ask themselves— Will there be enough capital or assets to comfortably retire on?
Financial Assistance & Educating the Young Person
Secondly, the young adult children will still most likely need financial assistance by means of a mortgage, even if you are helping them with a small or substantial deposit or savings. Their first step should be to speak to their bank, a lender, or a finance broker to assess their own borrowing capacity. They can also check out the information outlining the rules and regulations regarding any First Home Buyers entitlements and grants available. (different options for each state)
It’s also a good idea to ensure that they fully understand the concepts of budgeting, meeting monthly repayments, interest rates, bills, etc— the responsibilities of owning a home are a huge financial discipline that can often be difficult to learn.
Specific Methods of How to Help Your Child Buy a House
Retirees- The Bank of Mum & Dad
Many older Australian homeowners, especially retirees of the infamous baby boomer’s generation now face becoming the ‘bank of Mum & Dad’ (or in some cases ‘grandparents-bank’). We’ve listed some tips specifically about how to help without being financially disadvantaged (or totally ruined) in the process
Increased Deposit by Gifting Cash or Non-Genuine Savings
To boost savings, additional money can be gifted directly into the account but must be done so that the funds have been sitting in the account for at least three months to pass the genuine savings test executed by most banks.
Provide a Personal Loan
Another option often preferred to a deposit gift, is to provide a personal loan that is forgiven on death. This may however affect the lending criteria since any parental repayments would be considered when assessing the loan. Financial and legal advice should be sought by both parties.
Act as a Guarantor on Their Mortgage
Parents can help by using the equity in their own home and/or investment properties can take on the role of a guarantor over a portion of the loan amount. This method often increases the borrowing capacity and may remove the need to pay a deposit and/or expensive mortgage insurance.
Often banks will consider a guarantor loan of up to 20% of the mortgage and may also cover additional costs of stamp duty.
There are risks though— in a default situation, to cover any shortfall, the banks may pursue the parents for 20% of the loan amount after the property is sold. In some instances, banks will recoup their costs through the sale of the guarantor’s own property. It may not be a viable option for people with only the family home as their sole asset; but an ideal strategy for those with additional investment properties.
Think Outside the Box
Another financial assistance option to help your adult kids on to the property ladder is to buy an investment property which could initially be rented out, and later at a mutually suitable time, the title transferred to the adult child or family member.
Recapping the Importance Basic Budgeting & Savings Skills
Sometimes being generous with money is not a good idea but is disastrous all round! There are some adults that refuse to stand on their own two feet, leaching off their parents and are totally irresponsible. Without resorting to well-meaning nosiness or downright, unwelcome parental intrusion; it’s important to contemplate how their financial habits and track record will impact if things go belly-up.
The last thing comfortable retirees need is to find that their own wealth position is severely negatively impacted because of their irresponsible adult-children. You may be better off ensuring that they know how to save and budget their money before you go helping them out.
Here are a couple of helpful ways to financially assist without directly risking any hard cash or assets—
- Allow your adult / family member to live at home rent-free for a specific period to save a higher deposit.
- Look after grandchildren so the money on child-care fees can also be saved.