Helping kids into the housing market
Home lenders have been tightening their lending criteria over recent years and many are now looking for home buyers to have a minimum deposit of 20% of the purchase price before they will approve a loan.
As housing prices have continued to spiral, the prospects of any young people having saved a 20% deposit is becoming increasingly difficult. After all, 20% of a $600,000 purchase is $120,000!
So, how can someone borrow for a home if they cannot manage to save their 20% deposit?
There seem to be a couple of solutions:
- Get Mum and Dad to lend or gift the shortfall
It is not uncommon these days for Mum and Dad to either lend the deposit to their kids or gift the money to them. Often this involves Mum and Dad withdrawing part of their super to give their kids a lift up into the housing market. Whether this is an appropriate strategy is very much dependent on individual personal circumstances and the capacity to help kids out.
- Mortgage Insurance
Where borrowers don’t have their 20% deposit saved, lenders will often require a borrower take out mortgage insurance.
- Personal Guarantee
We are seeing more and more Mums and Dads agreeing to provide a guarantee of all or part of their kid’s loans.
Providing a guarantee for your kid’s loan will often involve Mum and Dad providing some form of security for the guarantee. Generally, the kid’s home loan lender will take a mortgage on Mum and Dad’s home.
Source: Peter Kelly | Centrepoint Alliance
