Helping your children buy their first home is one of the most important things you can do for them as a parent. But it isn’t always easy. Here are a few ideas on how you can help…
Owning property not only gets your child out of the rental trap and provides them with a lifelong financial asset, but it also gives you the peace of mind that your child will always have somewhere to live.
There are many ways you can help fund your child’s first home, from gifting them money to passing down ownership of a property through equity transfer solicitors. Share your past experiences and offer advice, as well as seeking out third party help.
In this post, we’re going to share the easiest ways to help your child pay for their first home, no matter your situation.
Helping your child pay for their first home
Some of these tips for helping your child fund their first home will be within your means and some won’t, but there is an option in this post for everyone.
1. Give them a financial gift
It’s usually quite difficult for your child to scrape together enough money for a deposit, especially when they’re young or if they’re stuck in the rental trap. This means you might need to step in and help them out.
Even if your child has enough money for the mortgage deposit, it’s still a good idea to gift money as it will help them secure a cheaper mortgage deal.
Depending on what country you live in, most banks will accept a deposit that has been gifted but, in some cases, they might ask for written confirmation to prove it was you. This is just so the lender knows it’s not a loan that your child needs to pay back in the future.
2. Loan money to them
Speaking of loaning money to your child for their first home, those of you who don’t want to give your money away can opt for this route instead.
Drawing up a loan agreement is quite straightforward. All the agreement needs to state is the sum of the loan, the interest being paid on it, and when it should be repaid. You must also state what would happen to the money if anyone involved in the loan died.
The downside of loaning money over gifting it is that you’d need to declare it to the mortgage lender. The mortgage lender would factor this loan into your child’s affordability calculations by adding repayments on it to their outgoings.
In fact, some banks won’t even accept a borrowed deposit as it makes it a lot less stable than if your child owned the money outright.
3. Borrow money for them
For those of you who don’t have piles of cash lying around, you could always take out a loan to help your child pay for their first home.
The easiest way to do this is by using your own home as collateral. You can do this through either secured loans or equity releases:
Secured loans are when you use your own home to borrow money by using it as a guarantee. You have to find the right deal when it comes to these loans and keep interest payments as low as possible. Never take this decision lightly because if things go wrong, i.e., you’re unable to make the loan payments, both your home and your child’s new home could be at risk. Only borrow what you can afford to pay back. You can check out other loan options on sccu.com.
An equity release scheme, often called a lifelong mortgage, will also allow you to borrow money against your own home.
The difference here is that you borrow money on the understanding that it will be repaid after your death via the sale of your home. It’s the equivalent of giving your children their inheritance early.
Depending on what country you live in you can borrow a percentage value of your home and won’t have to make any repayments. However, interest will be added to the lump sum that must be repaid after your death.
This option sounds good on paper, especially considering you don’t have to make any repayments, but in practice, it’s much more difficult to carry out than a secured loan.
4. Act as a guarantor on their mortgage
If you trust your child to make their repayments on time, then a guarantor mortgage might be the best way to fund their first home.
A guarantor mortgage is where you act as a guarantor for 100% of the mortgage debt if your child fails to make their payments. This doesn’t have to be forever as you can remove yourself from the mortgage once your child can prove they’re able to pay the debt themselves.
These types of mortgages aren’t as common as they used to be, but they are still around. In fact, they’re a useful alternative to giving your child money, lending it to them, or taking out a loan.
5. Get a joint mortgage with them
Our final option for helping your child fund their first home is to take out a joint mortgage with them. With this type of mortgage, you’re essentially acting as a partner in the investment of the home which means you’re equally liable for the repayments.
The primary benefit of this type of mortgage is that with your combined incomes, you and your child could afford to take on a larger loan.
However, the downside of a joint mortgage is the additional stamp duty. Different countries have different policies of course, but in places like the UK, your child’s new home would count as a second property to your own making the stamp duty rate more expensive.
Are these the best options for helping your child fund their first home?
In this post, we’ve shared the easiest ways to help your child pay for their first home, but this is by no means an exhaustive list.
There are many other ideas out there, but the majority of people will find that the options listed above are the easiest ways to pay for their child’s home. Give them money, loan them money, loan money for them or put your name on their mortgage.
Please be advised that this article is for general informational purposes only, and should not be used as a substitute for advice from a trained financial professional. Be sure to consult a financial advisor if you’re seeking advice on your finances. We are not liable for risks or issues associated with using or acting upon the information on this site.