Why might your kids need help in getting on the property ladder for the first time? Most first time buyers, especially those with little in the way of a deposit, find it really challenging to secure an affordable home loan with which they’ll use to purchase their new home.
It’s no surprise that around half of all first time buyers get some kind of help with their purchase because of the difficulties they face. More often than not, they get this kind of help from you – being their mom and dad. But how can you really help your kids buy property?
Giving your child enough money for a good sized deposit is the easiest way to help. That is likely to be around twenty-five percent (25%) of the value of the property. This will allow for the required 20% deposit as well as closing costs. Even a ten percent (10%) deposit will open the door to a broader choice of home loans.
If you don’t want to simply give them money, you can loan them the money and charge interest. It would need to be less than the market rate for the loan to help your kids. A good approach is setting down a repayment schedule at the beginning and formalising the arrangement through an agreement that would need to be drawn up by a solicitor.
Otherwise, you can get the money back if and when the property is sold. You can have an agreement drawn up by a solicitor when you give your children money for a deposit. The agreement will set out how much money you have contributed and how will you get it back once your child sells the property in the future.
There are also a number of ways that let you help your kids buy property without you directly giving them money or them borrowing cash from you.
You can help them buy a home by acting as a guarantor on their mortgage. In that way, you’ll be able to help without directly lending them money. What that means is that your available equity on a property that you own is taken into account in lieu of your child needing a sizeable deposit.
However, you would have to agree to cover the portion of the loan that you have gone guarantor for in the event that your child is unable to continue their obligations under the home loan. With these ways of helping your kids get on the property ladder, it is also important that you understand risks in all of these approaches.
So before coming up with a final option on how you can help, think very carefully whether you can really afford to help now and over the next five to ten years. Correspondingly, get help from a specialist mortgage broker if you have any questions at all.
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