Saving for a home loan has never been harder, but there are still several ways that willing parents can help their kids break into the market.
Guarantor – While your child may have the money to meet their regular mortgage repayments, they may not satisfy the lenders credit criteria. By becoming a guarantor for your child’s loan, you effectively allow the equity saved in your property. Consider this option when your child has the ability to make the loan repayments but does not have sufficient cash for the deposit or associated loan costs.
Co-ownership- Another option to help your child break into the property market is co-ownership. As a co-owner, your name will be included on the loan and the title – you will share ownership of the property with your child. However, if you are included in the loan, you also have the responsibility to pay the loan in the event that your child cannot meet repayments.
Being able to help your child succeed in the property market can be seen as a real opportunity, but remember you could be putting your assets at risk as well as theirs. Prior to entering into any agreement be sure to speak to your mortgage broker and seek independent legal advice to assess the associated risks involved in this option.
What are the risks?- As a parent, it is in your nature to want to help your child achieve their property dreams. But be warned: entering into a co-ownership arrangement or going guarantor on your child’s property can come at a cost. For example, if you become a guarantor, you are personally liable in the event that your child fails to make the necessary repayments. In some cases, the bank will take the house as security for that loan. This could put your family home at risk. Keep in mind that being a guarantor or co-owning a property with your child will also hinder your own personal borrowing capacity. This could delay any plans you have for purchasing a new home or refinancing your mortgage. The risks (and rewards) associated with supporting your child in this milestone move are varied. Whether this option is for you will depend on your situation.
If you’d like to talk to John, he can be contacted on 0749722081 or 0410433919. You can also email him at jwhitten@ihl.net.au or look him up on the net www.ihl.net.au. John Whitten is a credit representative (CRN 399796) of BLASSA Pty Ltd (Australian Credit Licence No 391237).
