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Would you help your kids buy their first home?

As parents there are many ways in which we help our children get ahead in life. Helping them buy their first home has become a growing trend. In a market where house prices seem to be increasing by the day, it is hard to see our children being priced out of the market.

Helping your kids onto the property ladder can be very rewarding for both parties, and there are many ways to go about it. You can gift them money towards their deposit, provide a guarantee, be a joint borrower, or you might choose to lend them the money to help them purchase their home.

However you choose to do it, there are many things you should take into consideration before you even talk to them about this possibility.

Are you able to help?

The best intentions are not enough. It wouldn't be prudent to lend your kids money for their deposit if it means you will not be able to support yourself now, or in your retirement. After all, if you can't cover your basic needs when you retire, they will most likely have to help you out!

Even with your help, can they afford it?

Your child will be responsible for making the repayments, so unless you are prepared to help them financially on a monthly basis, you need to be certain they can afford it. It would be very hard to see your children under financial stress to meet their commitments, or even worse see them go through a mortgagee sale.

One way to check if they are financially ready to own a home is for them to practice saving at the same rate as their loan repayments are going to be for at least six months before they start to look for their first home. This has the added benefit of increasing their deposit while they practice!

Are they ready to become homeowners?

Being ready to own a house is more than just raising the money for a deposit and being pre-approved for a loan. Their attitude and initiative regarding owning their own home should tell you whether they have considered it seriously. Have they made an effort to save money towards their deposit? Have they started researching the property market? Have they been to open homes and identified what sort of property they want and can afford? Do they have realistic expectations?

They will need to understand the financial commitment they are about to take on, how their loan will work and what they will need to deal with when they are homeowners – rates, insurance, maintenance, and simple things like furnishing their home, should not be a surprise to them.

Have you consulted with your professional advisers?

Once you decide to go down this path, you will need to decide what is the best way to assist them – lending money, providing a guarantee or borrowing with them. There could be different legal and tax implications with the different options that you will need to weigh up, so make sure you consult with your professional advisers. If your dependants are in a relationship, ask the question of what would happen if they were to split up. You also need to consider the most appropriate entity to own the property.

As we said at the beginning, helping your kids into a home can be very rewarding, however a little bit of homework from the outset can ensure your kids get off to the very best start.
Image courtesy of digitalart / Freedigitalphotos.net


 

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