Helping your children buy their first home

Many Gen Y'errs of today have good jobs and solid incomes. Their job security and income would allow them to obtain a loan large enough to buy in today's market. However, coming up with the deposit and stamp duty is what is holding people back from owning their first home.

Many parents would love to help their children get into the market, but do not feel comfortable guaranteeing the full value of their own home toward it, or don't have 20% in cash to give to their children.

There's another way of getting your children into the market without having to guarantee your own property in its entirety. It's called Family Pledge.

Family Pledge loans allow the parent (or other close family member) to guarantee a set amount against their home or investment property. Say your child wants to buy a 3 bedroom townhouse in Greystanes for $665,000. A 20% deposit, plus stamp duty would total $159,000.

With Family Pledge, the guarantee against your home would only be for $159,000. Or less if your child has some savings to put toward their property purchase. So if the worst were to happen and your children were unable to repay their loan, you would be liable for a maximum of $159,000.

After the purchase, once the child's property increases in value by $159,000, the bank will release your guarantee from the loan and your house will no longer be held as security against it. So ideally, if your child can purchase a home under market value, or that can be renovated for an increase in value, it may only take a few years to be released from the guarantee.

If you are retired, the majority of lenders will not consider you eligible, but one will consider your position on request. Alternatively, you can obtain a guarantee on an investment property that you already own.

The application is based on your children's income only and they will obtain a 105% loan for the property. Your role in the purchase is solely to offer the guarantee.

If you'd like to find out more, or to see if you and your child qualifies, please call on 0414670151 or email jennifer@jblhomeloans.com.au