Tuesday, July 16, 2019

House

The real estate market can be tough for young adults, but as parents you can help. Here are 5 ways to help your children buy property. 

1. Parent-to-child loan

A parent-to-child loan is where a parent lends money to their child. It is a formal, legally binding arrangement which is administered by an independent third party. At the start of the loan, both parties agree to the terms including repayment amounts, a schedule and the process to manage defaults. 

Benefits: You can set generous terms for your child, but your assets, savings and credit rating are somewhat protected as you are not the borrower.
Drawbacks: There are legal implications for your child if they have a spouse and the relationship breaks down. The spouse could try to claim some of the loan proceeds as an asset of the relationship to which they are entitled. There are also tax considerations for both parties. 

2. Family guarantee

If your child does not have enough security for a mortgage, you could provide a family guarantee. You would use some of the equity in your home as part of the security. For example, your equity may cover 20% of the security and your child's new property would cover the other 80%. This is also known as a guarantor loan. This can be a temporary arrangement until your child has paid down the loan to an acceptable level. 

Benefits: You have the option of guaranteeing a portion of the loan.
Drawbacks: If your child defaults, your assets are at risk. 

3. Becoming a co-applicant

You can help your child secure a loan if you sign as a co-applicant. This means you are equally as responsible as your child for meeting repayments. The lender will consider your assets in the borrower's assessment.

Benefits: Your child can obtain a loan with a low income.
Drawbacks: If your child stops making repayments, you are responsible for making them. If you cannot make the repayments, it will affect your credit rating. 

4. Gift

When you give your child money but you do not expect it to be repaid, then it would be considered a gift. You may need to sign a statement to say it's a gift, not a loan. 

Benefits: You can provide financial help, possibility without the legal, tax or financial implications of a formal arrangement. 
Drawbacks: If your child has a spouse and their relationship breaks down, they could make a claim for the property. 

5. Assistance in kind

If you are risk averse, consider helping in kind, which means covering some of the expenses that come along with buying a property. You could pay for services such as a property survey, conveyancing fees or help with stamp duty.

Benefits: You can give practical financial assistance. 
Drawbacks: The amount of money you provide may be more than what your child spends. For example, you might want to contribute $20,000 but the services only cost $15,000. In this case, the rest of the amount would be subject to the terms of a gift or a loan. 

Make sure you are well informed about your options when giving or lending money so that you can remain in the best possible position to help your child buy property. You can contact your mortgage broker to discuss the right financial arrangement for your family. 

 

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Contact Details

Zippy Finance 

PO Box 3078
North Turramurra
NSW 2074

T 1300 855 022 

Louisa Sanghera is a credit representative (437236) of BLSSA Pty Ltd ACN 117 651 760.  Australian Credit Licence 391237. ABN 85 168 278 975.

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