Taking that first step on the property ladder can call for some resourceful strategies – and parents can lend a valuable helping hand.
If you’re a first home buyer, it can pay to be patient. It takes an average of three years to save for a first home, but there are ways to fast-track things – especially if you can muster the support of family. And it doesn’t have to see mum and dad dipping into their pocket.
Head home, save a deposit
Young Australians are increasingly choosing to live in the family home, and it can be a big money saver. Across our state capitals, it costs an average of $450 per week to rent a 2-bedroom unit. Even if you share with a flat-mate, renting could still set you back $225 each week – money that could be going to your first home deposit.
It’s no wonder that one of the most popular ways for families to help first home buyers, is by allowing their adult kids to live at home rent-free while they save for a deposit. But if that’s not an option for you, there are other strategies available.
A financial helping hand
Another possibility is for parents to gift their child all or part of their home-buying deposit. Nice if you can afford it – and surprisingly, many families can.
Research shows around 1.02 million families have offered financial assistance to children attempting to buy their first home, gifting or lending an average of $64,206 per family.
The thing is, well-intentioned handouts may not always get you across the line for a home loan. Lenders still want to see evidence of genuine savings, often extending back three months, so it’s an area where good mortgage advice can help. Your Aussie Broker can explain what to be aware of when parents gift cash for a first home deposit.
Agreeing to go guarantor
Happily, it may not be necessary for parents to dip into their own savings. Agreeing to act as guarantor for your first home loan may be a low cost option that works for everyone.
A guarantor uses the equity in their own home to provide additional security for a home loan. This can help you avoid or at least reduce the cost of lenders mortgage insurance (LMI), which normally applies if you buy your home with less than a 20% deposit.
As the home buyer, you’ll still need to show lenders you can afford the loan repayments. But one of the pluses of this strategy is that your parents may not have to guarantee the whole mortgage – if you’ve saved, say, a 10% deposit, mum and dad can guarantee just 10% and still help you bypass LMI.
The downside to this approach is that the guarantors are liable for the loan if you fail to keep up with your repayments So it’s not a decision to be taken lightly, and seeking independent legal advice is a sensible move to be sure it’s the right choice for everyone.
Co-buying a first home
For something a bit different, consider asking your parents to join forces with you as a co-buyer of your first home. It’s an idea that can have merit.
Property values in Australia have risen 618% over the past 30 years, so if your parents have held the same family home for some time, they could have a big pool of equity to their name.
Even better, home equity can often be used in lieu of a cash deposit, so mum and dad may be able to come on board as co-owners, potentially helping you into your first home, while giving them an opportunity to put their equity to work in another property.
Co-buying can call for some extra planning, sorting out how things like regular home expenses will be shared. It also means giving thought to the way the property will be held – either as “joint tenants” or as “tenants in common”.
Under a joint tenancy, if one co-owner dies, the remaining owners automatically inherit an equal share of the place. However, it may be more appropriate to own the home as tenants in common, in the situation where each co-owner has contributed a different amount of money to the property. This ownership structure gives everyone a stake in the property that reflects the proportion of funds they each contributed, and it can be possible to sell your share further down the track, which can be appealing for parents looking for an exit strategy.
Your solicitor can advise on the ownership structure that is right for your circumstances.
Talk to your Aussie Broker for more ideas on how families can work together to help first home buyers into a place of their own.