The Essential Guide to Helping Your Children to Buy Property
We all want what’s best for our children. This extends to the properties that they end up buying. As a parent, there’s plenty of ways you can help with buying a property for your children. This article offers some tips to help you out.
Your children are your pride and joy. Like any parent, you want to do everything that you can to provide for their futures.
For some parents, this means ensuring their children have the right property. You may help with buying a property for your children with the intention of them living there. In this case you need to figure out the answer to “how do I help my children buy property?”
Or, you may buy an investment property with the aim of supporting your children later on. If that’s the case, you have to ask “how do I find the right investment property for my children?”
Whatever the case may be, this article aims to provide you with some answers. Here are seven tips for helping your child buy a property.
Tip #1 – Consider Guarantor Loans
Buying a property for your children outright isn’t always possible. But that doesn’t mean that you can’t help your children to buy. That’s where guarantor loans come into it.
Most of us know that the deposit is the hardest thing to raise when buying a property. If you’re looking to raise a 10% deposit, you’ll usually need more than $50,000 in the current property market.
That’s a huge burden for your children to deal with.
A guarantor loan eliminates the need for your children to raise their own deposits.
Here’s how it works. When you act as a guarantor, you place your own home up as the security on a home loan. This is the role that the deposit usually plays. You’re telling a lender that they can come to you if your child fails to keep up with their mortgage repayments.
This may worry you because it places your property at risk. However, the burden eases as your children repay their loans. Once they’ve repaid enough, they can apply to have the guarantee removed.
Guarantor loans allow your children to fast-track their way onto the property ladder. They don’t have to raise a deposit and can usually access good home loan products. As a result, using them is one of the best tips for helping your child buy a property.
Tip #2 – Teach Them About Saving Early
This tip involves a little teaching early on. Saving is a huge part of buying and affording a property. If your children don’t understand its importance, they’ll struggle to afford the cost of living on their own.
Think back to when you picked up your first paycheque. The excitement of finally earning your own money probably got the best of you and you ended up spending it all in a heartbeat.
That’s okay, and it’s a feeling that you don’t have to take away from your children. But once they start earning, it’s important to have the talk. Discuss the benefits of saving with them and tell them how it will help with buying a property. Talk them through the dangers of credit cards and how relying on them could cause issues later on. Set up a savings account for your child and provide balanced advice on how to save without forgetting about enjoying life.
It’s remarkable how many people don’t start saving until they reach their late-20s, or even early-30s. Instil the value of saving into your children. You’ll be helping your children to buy property without actually spending any money.
Tip #3 – Giving a Cash Gift
Sometimes, keeping it simple is the best way of helping your children to buy property. A cash gift can help your children deal with the deposit issue, without you having to put your home up as security.
It’s not as simple as giving the gift and going straight to a lender though. Your children usually have to wait for several months before they can apply for a loan. Depending on the lender, this period of time can vary from three months to six. Moreover, some lenders won’t allow people to use cash gifts as deposits.
Beyond this, your children also need their own, strong source of income to increase their chances of getting accepted for a loan.
Here’s what lenders want to see. They want your children to show they won’t fritter the gift away. And they want to see that your children can support themselves once they have the property.
If your children can prove that, a cash gift is one of the best tips for helping your child buy a property.
Tip #4 – Allow Them to Live at Home
Most parents know the feeling. Their children come of age and they look forward to getting them out of the house. That’s not a knock against your children. It just means that you’re looking forward to enjoying the fruits of your labour without worrying about the kids.
The problem comes when your children fly the nest too early. They’ll usually end up renting a property, which puts a huge dent into their earnings. In some cases, the cost of rent may be so high that they can’t save for the deposit on their own property.
There’s a simple way to help with this. Allow you children to live at home for a few years. This takes the burden of paying rent off their shoulders. This gives them the time to save the required money for a deposit.
Yes, it may mean that you have to delay whatever plans you had for your own home for a while. But it’s an excellent way of helping your children to buy property quicker.
You may have to make some arrangements to smooth the process over though. Keeping your kids at home does mean you’ll deal with higher grocery and utility bills. Have your children pay their share while offering them enough leeway to save quickly.
Tip #5 – Talk Them Through the Processes
You already have a mortgage, so you know all of the things that can trip a new buyer up. Extra fees, such as stamp duty and application costs, can make things more difficult for your children. This is especially the case if they have no idea that they’re coming.
Informing your children is one of the best ways of helping your children to buy property. When they know what they’re getting into, they can prepare better.
It’s worth compiling a list of all of the costs associated with buying a home. The deposit is the most important, but so too are stamp duty, valuation fees, and building inspection fees. There are also legal fees and lender fees to consider. Work with your children to create this list, so they know exactly how much money they need to save. With this end goal in mind, they can focus their saving efforts. Moreover, they won’t get tripped up and have to rely on the bank of mom and dad when they make their eventual mortgage application.
Tip #6 – Buy in Partnership
While buying a property for your children may be a step too far, you can certainly help. Buying a property in partnership allows your children to split the cost of the loan with you.
This strategy works best when your child buys a home for themselves. You’ll be able to get on the same page in regard to the purpose of the partnership.
However, things get a little more difficult when your child has a partner. This brings more people’s opinions into the arrangement. Your child’s partner may decide that they want to do something with the property. For example, they may want to access the equity that the property has built up, for whatever reason.
The problem with this is that you have a half-share of that equity. If your child or their partner wants to access the majority of it, you’re losing out.
It’s a complex situation. Approaching it with anything less than a level business head creates the potential for complications to arise. Outline the exact conditions of the partnership and you reduce the risk of problems arising. Just know that this method can lead to familial complications if you’re not careful. It’s only a useful tip for helping your child buy a property if you’re certain that nothing will complicate the arrangement.
Tip #7 – Loan Your Child the Money
Your children may feel uncomfortable with the thought of taking money directly from you. They may also not want to enter a partnership or have you risk your property to act as a guarantor.
But that doesn’t mean you can’t do anything to help. Instead of giving your child money outright, give it to them as a loan.
In doing this, you’re helping your children to buy property in a number of ways. Firstly, you’re still providing the money that they need to get on the property ladder. Your loan could help them to pay a deposit and any extra fees.
Secondly, your loan doesn’t have to come with the conditions that a regular loan would. You don’t have to charge interest, which means it’s easier for your child to repay.
Thirdly, your children get to keep their sense of independence. You’re still helping them out. But you’re doing so in a way that doesn’t make the help seem like a burden on you.
Such arrangements tend to be informal in nature. But you may want to draw up an official contract that stipulates the amount of the loan and how your children will repay. This protects the loan and reduces the risk of problems arising later on.
The Final Word
There are several ways that you can help your children with buying property. Some involve helping directly. You can put up your own home as a guarantee or provide the cash they need to get started. Other methods involve passing on your own experiences. Ensure they understand the value of saving and that they know what to expect when they buy.
You can also help them if you work with a suitable buyer’s agent. That’s where Cohen Handler can help. Get in touch with us today to start your children’s search for the perfect property.