Do you plan on helping your children financially?
Part of the great Australian dream is owning your own home. With property and house prices sky-rocketing, have you ever stopped to wonder how your children will be able to afford buying their own home? Are your children likely to be approved for home loans and will they need your help?
In Geelong, property prices are definitely rising and the property market is certainly booming with areas such as Warralily and Armstrong Creek being developed to accommodate the growing number of people buying land and building new homes.
There will come a time when your children will grow up and want to move out of home. But why should they move out and rent when repayments can be so similar to mortgage repayments? In many cases a deposit stands between your child’s decision to rent or buy. If your child doesn’t have the ability to save a deposit they might need to rent. But if the ability to save a deposit is there, buying might be a viable option!
As a parent, you want the best for your children and for them to have a bright future which includes financial stability. It is reported that eight in 10 parents are willing to provide some form of financial support in order to help their children realise the dream of owning their own property.
So what are some of the options to help your children secure home loans in the future?
Allow them to live at home while they save a deposit: When the time comes for your young adult to move out of home it is worth discussing their goals with them. If they plan to buy a house it might be worth them living at home for an extra period of time until they save their deposit. Discuss what this means and how the living arrangements will work for each of you during this time.
Gifted deposits: If you are able and willing, you can gift your offspring with a house deposit. Make sure that once the deposit is gifted and the property is purchased, that your child can then afford ongoing repayments. Set clear boundaries and guidelines for the gift and avoid giving your children lump sums of cash which they might be tempted to spend prior to making their purchase. Make sure the money truly goes towards a house deposit and ensure they understand this is what the gift is for.
Acting as guarantor: Parents can act as a guarantor on their children’s home loans if they have equity in their own property. This can be a viable option if your child has the minimum accepted deposit by your financial institution, such as five percent. Acting as guarantor can also work in cases where financial institutions allow buyers to borrow the full cost of a home. The guarantor option is quite a popular because it requires no actual exchange of money – but be aware the equity of your home is tied into your child’s home loan and you can be affected if your child cannot meet the required repayments.
There are other options available too and we suggest you read our full PDF “Helping your kids financially” for more information (pictured above). If you would like to discuss home loans in Geelong or how you can best help your children now and in the future, please contact us.
