Many young Australians are finding it extremely difficult to buy their first home. However, there are many things parents can do to help their kids start paying their own mortgages instead of their landlords.
If your child has enough money to make mortgage repayments, but are not able to secure a loan on their own, the parent can help them obtain their loan by becoming a guarantor. Mechanically, this allows your child to use your home equity to secure the loan. The best time to consider this option is when your child has enough money to make mortgage payments but not enough for the deposit or the other upfront costs.
Co-ownership is another way you can help your child obtain their first home. This option is exactly what it sounds like; you and your child will share ownership of the property, and your name will be included on both the title and loan. Remember, though, that you are responsible for paying off the loan if your child is unable to do so.
Also, remember that you are risking your assets here. We recommend that you consult both a lawyer and a mortgage broker to properly assess the risks involved in co-ownership.
A summary of the risks involved
While it is your instinct as a parent to help your child achieve home ownership, entering into a guarantor or co-ownership arrangement with your child involves significant risk on your part. As a guarantor, if your child is unable to make their mortgage payments, you will be responsible for making them yourself. If you have offered your family home as security against the loan, you could lose your home.
Being a co-owner or a guarantor can also diminish your borrowing capacity. It could make you less able to purchase a new home for yourself or to refinance your mortgage.
Once again, always speak to a mortgage broker when considering this kind of decision.