help kids home loan first home assist

Want to help your kids buy property? Here’s how.

Want to help your kids buy property?    Here’s how.

The real estate market can be tough for young adults, but as a parent you may be able to lend a helping hand.    We tell you how.

1. Parent-to-child private loan

A parent-to-child loan is when a parent lends their child money to purchase a property.  This arrangement needs to be documented at the start of the loan period, both parties agree to terms including repayment amounts, a schedule and a process to manage defaults.

  • Benefits: You can set generous terms for your child.
  • Drawbacks: Opportunity for family dispute if arrangements are not adhered to.   There may legal implications for your child if the event of a future relationship breakdown. There are also tax considerations for both parties.

2. P2C loan 

A P2C loan is offered by a financial institution where the parents make an investment and the funds are on lent to the child as a first home loan.  The parents do not need to enter into any arrangement with the child and it protects their home and retirements savings.  All repayments etc are handled by the financial institution.

  • Benefits: You can set generous terms for your child and the arrangement is independantly arranged and managed.
  • Drawbacks:  Few,  child gets the home and parents investment is protected.  There may be legal implications for your child in the event of a future relationship break down.

3. Family guarantee

If your child doesn’t have enough savings for the deposit on a home, you could provide a family guarantee. This is where you use some of the equity in your own home as part of the security. For example, your equity might cover 20% of the security, and your child’s new property would be the other 80%.  This is know as a “Family Guarantee Loan”.

This can be a temporary arrangement until your child has paid down the loan.   Their property can be revalued and your home being used as security is released.

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

4. Becoming a Co borrower

You can help your child secure a loan if you become a joint applicant. This means you’re equally as responsible as your child for meeting repayments. The lender will consider your assets and income in its lending assessment.  You will both need to mortgagors (owners) on the property.

  • Benefits: Your child can obtain a loan to purchase a property but will not be able to claim the First Home Owner benefits.
  • Drawbacks: If your child stops making repayments, you’re responsible for making them.

5. Gift

When you give your child money but don’t expect it to be repaid, it’s 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, possibly without the legal, tax or financial implications of a formal arrangement.
  • Drawbacks: If your child has a spouse and their relationship breaks down, the former partner could make a claim for the property.

6. Assistance in kind

If you’re risk averse, consider providing assistance in kind; that is, covering some of the expenses that come along with buying a property. You could pay for services such as a property survey or 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 ends up spending. For example, you might want to contribute $20,000 but the services cost $15,000. In this case, the rest of the amount is subject to the terms of a gift or loan.

Make sure you’re well informed about your options when gifting or lending money so you can remain in the best position to help your child become a home owner.   We’re here to help you make the right decision for your family situation.  Just call us on  1300 360 999.

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