Helping your child buy a home can be a significant financial decision but also often the best option to help them enter the property market.  There are various ways you can provide support depending on your circumstances and their needs. Here are some strategies you might consider:

Gift or Loan of a Deposit

One of the biggest hurdles for first-time homebuyers in Australia is saving for a deposit. The typical deposit required is around 20% of the property’s value, but there are ways to help without giving away that much.

• Gift Deposit: You could give your child a gift towards their deposit. This would reduce their borrowing amount, and they wouldn’t have to repay it. This is a straightforward option if you have the funds available.
• Loan Deposit: Alternatively, you could provide a loan to your child to help with the deposit. The terms of the loan would need to be clear, such as the repayment schedule and whether interest is charged. This option can allow your child to repay the loan over time if that’s more suitable.Guarantor Loan

One popular way to assist your child is by acting as a guarantor on their mortgage. This allows them to borrow more money and avoid paying Lenders Mortgage Insurance (LMI), which typically applies if the deposit is below 20% of the property price.

• How it works: If you act as a guarantor, your child’s home loan is secured by both the property and your own assets (like your home or savings). This provides the lender with extra security.
• Risks: If your child fails to meet mortgage repayments, you may be required to cover the costs. This can carry significant financial risk, so it’s important to carefully assess your ability to handle this before proceeding.

Co-Purchasing the Home

You can consider buying the property together, either as joint tenants or tenants in common. This allows your child to secure a home they might not be able to afford on their own.

• Joint Tenancy: This means you both own the property equally and have the right to live in it. When one party dies, the other inherits the full property.
• Tenancy in Common: This is an option if you want to own a portion of the property, such as 50%, and your child owns the other portion. You can both decide how to divide the property.

Considerations: Co-purchasing a property means sharing responsibilities for the mortgage and the ongoing costs. It also requires a good understanding of each party’s expectations regarding the property’s use and eventual sale.

First Home Buyer Grants and Schemes

Several government programs can help first-time buyers in Australia, which may make it easier for your child to buy a home without needing as much financial assistance from you. You could assist them in navigating these options:

• First Home Owner Grant (FHOG): Available in most states and territories, the FHOG is a one-off payment to eligible first-time buyers who are purchasing a new home.
• First Home Loan Deposit Scheme: The government helps first-time buyers secure a home loan with a deposit as low as 5%, without having to pay LMI. This can be a great option if your child struggles to save a large deposit.
• First Home Super Saver Scheme: This scheme allows first-time buyers to save for a deposit within their superannuation fund, benefiting from tax advantages.

Make sure to check eligibility requirements, as they vary by state.

Pay Off Debts Before Buying a Home

Helping your child reduce their existing debt (such as credit card balances or student loans) can increase their borrowing capacity and make it easier for them to qualify for a mortgage. Lenders assess both income and debt levels when determining how much a person can borrow. The lower their debts, the better their chances of securing a mortgage at a reasonable rate.

Set Up a Savings Plan

Encourage your child to save for a home deposit through structured savings programs. If they are still a few years away from buying, you can help them create a savings plan and set goals, or consider setting up a high-interest savings account or investment that can grow over time.

• Help with Budgeting: You can assist your child by helping them create a budget or plan for how they will save for the deposit. Even modest contributions from you can add up over time.
• Savings Account or Investment: You might set up an account that both you and your child can contribute to, with a clear purpose of saving for a deposit.

Rising cost of living and a housing affordability crisis has made getting into the property market more difficult for first home buyers entering the property market . There are ways a parent may help assist in getting their children a kick start but the first step should always be consulting with your mortgage broker for information to determine the optimum strategy to help your child become a home owner sooner.