A way to help your kids get into the housing market
There’s a lot of talk lately about what Gen Y should or shouldn’t do in order to enter the housing market – smashed avo or $4 coffees anyone? But, in all seriousness, there are a few creative, yet sound ways the younger generations can take that first step on the property ladder.
Have you seen the latest St George advert? You know the one… adult children living in a caravan in the backyard, mum wondering how on earth she can help them get into their own home (and out of hers), dragon gets mum to look around at her house… equity. And the dragon is spot on; this is a way to get the younger one’s foot in the door. (Please note, we’re completely independent it’s just that the advert made it a little more fun to explain)
While the government make plans, and the opposition oppose, the answer to kids moving out of home and into their own home could be sitting right there in the family home. Parents can go guarantor on home loans by using the equity in their home to help their kids. But, like every contractural agreement we enter into, it should be well considered, from all angles.
What is equity?
The market value of the parent’s unencumbered interest in their real property — that is, the difference of the home’s fair market value and the outstanding balance of any money owing on the property. In layman’s terms – the difference between what the family home is currently worth and what they still owe on their home loan.
What are guarantor home loans?
There are different types, but usually a guarantor home loan is where family members offer property as security for the loan when there is insufficient deposit.
When mum and dad have equity in their home or other asset, it can be used instead of needing to raise cash. Mum and/or dad as the guarantor/s only provide security for the home loan and all of the repayments are made on the loan by the child (borrower). This is excellent news for the parents that want to use their hard earned cash on other things like that trip around Australia, new fishing boat or just cash to pay their own bills.
If the child (borrower) doesn’t make their repayments then mum and dad’s (the guarantors) home or other asset that is used as security, is at risk. And getting it sorted will take more than popping them in a time out or taking their car keys away.
What do mum and dad need to know before committing?
It’s important for the family to understand what their responsibilities and their risks are if things don’t go to plan. What happens if the child fails to make the repayments, breaks up with their partner etc. They may also want to seek independent financial advice before they commit to going guarantor.
Give us a call at Oak Financial and one of our experienced brokers will make a time to sit down with all of you and have a chat in detailed about your options, your responsibilities, your risks and how it all works. Our first tip – if you’re about to ask mum and dad to go guarantor on your home loan, you may want to back off on the smashed avo and show them you’re serious about getting into your own home sooner.