Here's how your parents can help you get into home ownership
Apart from actually gifting you the money or guaranteeing your home loan with the lender, there is another option whereby parents can avoid risking their own financial situation or their home. It is a formal, managed loan through a bank or lender and it helps to keep everything above board and official.
This new product is called a Parent Assist loan. Basically, it takes the form of a structured loan between you and your parents and can cover an amount up to 100 per cent of the purchase price, depending on what your parents are willing to lend you.
A typical example might be that your parents lend you twenty per cent of the purchase price: equivalent to a deposit. And then, the bank provides the rest. You repay both your parents and the bank with interest. In some instances your parents might agree to accept a far lower interest rate than the bank.
Not all lenders offer this kind of loan, and the guidelines and eligibility factors may differ from regular home loans.
There are a whole bunch of baby boomers out there who own their own homes outright and are sitting on hundreds of thousands of dollars in equity. Using this scenario, they can make a real difference to their children’s lives. So if you are that special, trusted and deserving son or daughter with equally trusting and deserving parents, then you should ask them about this. What have you got to lose?
HOW ONE WOMEN GAVE HER SON THE GIFT OF HOME OWNERSHIP
In 1998 at age 41 Linda purchased her first home for $93,000 in regional Victoria. She was raising two children as a single parent and had been saving for a deposit to buy a home for about 10 years. Slowly over the next sixteen years she spent a further $100,000 renovating her home giving her a mortgage of approximately $200,000. Linda then inherited $130,000. She used that money to pay down her mortgage leaving her sitting comfortably with $70,000 owing on her home.
In those 16 years, property prices rose some 400%. In 2016, Linda’s home was valued at $450,000 meaning that the equity she now had in her home was $380,000.
This equity enabled Linda to help her son achieve home ownership by lending him $100,000 of her equity for him to use as a deposit to build his new home.
A mortgage broker was able to help them structure a legally binding parent assist loan which made it possible for Linda to safely lend her son the money which he paid pack with interest as per the same arrangement he would have with any other lender.
The money borrowed from his mother’s equity went a long way in helping her son get started on his home building journey which meant that he could stop paying dead rent and put that money into his own place despite not having a deposit.
Explore creative pathways to home ownership. Consider if there is someone close to you who would consider entering into a legally binding agreement that enables them to effectively function as your bank for part or whole of your required funds.
Instead of thinking outside the box, get rid of the box
- Deepak Chopra
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