Buying a home is a huge step, but one that can be facilitated by the helping hand of your parents. We’re going to be up front with you and say that not everyone’s parents are in a position to help their children buy a home. The Perspective team has done some digging and it turns out there are more ways in which your parents can help you buy than doling out raw funds. We investigate the possibilities for parental assistance in purchasing property below:
Receive a Cash Gift
One of the hardest things about purchasing property is having the ability (and patience!) to accumulate a deposit. If your ‘rents have funds to spare, one of the best ways in which they can offer assistance to First Home Buyers is to give a non-refundable cash gift. This can either act wholly as the deposit or contribute to what you’ve already saved to increase your deposit. If the cash gift is your entire deposit, it needs to be non-refundable (not a financial agreement – see below), but if it’s less than 10% of the property value, your lender may require 3 months’ worth of genuine savings.
Sign a Financial Agreement
Another way in which your parents can help you buy a home is to give you a loan for the deposit. It’s essential if using this method that you sign a financial agreement with your parents and set everything out in a legally-binding contract. Having a contract in place will protect both you, the borrower, as well as your parents, the lenders. Be sure to communicate openly and honestly with your parents and be clear about your expectations with any money exchanged; this can alleviate any awkwardness further down the line.
“Going Guarantor” is something you’ve likely heard of but may not fully understand. It carries the most risk for your parents, but is also the most feasible method of assistance if they don’t have cash to spare. As a guarantor on your mortgage, your parents guarantee that your repayments will be paid by securing your mortgage on their property. In other words, if you cannot make the repayments on your property, your parents are left with the burden of those repayments – often on top of their own mortgage repayments already.
Split the Difference
Joint mortgages are becoming an increasingly popular method for parents to help their child gain a foothold in the property market. Your parents will also be named on the title deed for the property, and will again be liable for keeping up with mortgage repayments. Similarly to a guarantor mortgage, once you’ve gained enough equity in the property you can effectively “buy out” your parents.
Move back in
It’s become common practice for singles or couples to move back in with their parents for a few months before purchasing a home to assist with saving a deposit. If you can withstand the mental strain that is moving back home and playing by someone else’s rules (if only for a short time), it could add as much as $10,000 to your deposit over 6 months of saving on rental repayments of $400 p.w. Another option we’ve heard of is moving into your parents’ investment property (if they have one) for 6 months and paying half the regular rental amount.
The most tried and tested way in which parents can help their children buy a home is to instil good saving habits in from a young age. If you’re reading this mid-property search, it’s probably too late to open a Dollarmites account…but you can pass valuable lessons in money management onto your own children. Teaching your kids to put money away and save it to put towards something in the future is invaluable, and will pay dividends (literally) when they’re eventually commencing their house-hunt in earnest.
It’s tough out there, but if your parents can help you, they’ll usually recognise how far their assistance can go to setting you on your way to property ownership. There’s nothing to be embarrassed about in the conversation; they’re your parents and they’re there to help.