Helping Your Children Purchase Their First Home

Do you think about how your children will be able to afford their own home and if there is anything you can do to help them? There is a way to do so that does not require you to provide them with a cash deposit if you have your own home. This is called a Family Guarantee Loan.

Are you working and will remain working for at least a few more years? Is your home loan paid out or is your home valued at a figure much higher than the loan remaining? If so, it may be possible for you to use the equity in your home as a deposit for your child’s first home.

If you are no longer working and you have an investment property, it may be possible to use your investment property equity to assist your child. As a general rule, the banks will not allow a retired person to use their home as a guarantee.

Your major concern is the risk of losing your home if your child cannot or does not pay their loan repayments and the bank takes their home from them. With a Family Guarantee loan, your maximum risk is only for the deposit amount that you guarantee to your child.

As an example, if your child wanted to buy a 2 bedroom villa in South Wentworthville for $650,000, you would be guaranteeing their 20% deposit of $130,000. This $130,000 would be the maximum figure that you would be liable for, if for some reason the house had to be sold and the bank had to sell it for a figure less than the original purchase price.

Once your child’s home increases in value by 20%, either via natural growth and/or renovations that improve the value, the bank will then release your home as security against your child’s home loan.

Your home is used as security, but you are not responsible for the loan repayments. You will be asked by the bank to provide them with your current financial position. This is to assess that you will not be in hardship if you had to take on the $130,000 loan portion (as per my example above).

Once the bank agrees that you are acceptable guarantors to use your home as security for the 20% deposit, your child (and their partner if they have one) will then commence the loan application process. As you are not responsible for the loan repayments, they must show that they have sufficient income to obtain a loan of $650,000, being the full purchase price of their first home.

I note that I have not discussed stamp duty in this document, as stamp duty is currently exempt in NSW for first home buyer purchases up to $800,000.

If you'd like to find out more, or to see if you and your child qualify, please call me on 0414670151 or email jennifer@jblhomeloans.com.au. Depending on your preference, we can hold a meeting for all of you together, or we can meet or chat first, to ensure that you feel comfortable with being a guarantor before offering this option to your child.