The housing market nowadays is challenging, especially for millennials. Most people in this generation often find themselves worrying about the complexity of student debt as well as the growing stringent mortgage requirements, to name a few. That’s why more and more parents are trying to find ways to assist their adult child in home buying.
Having the means to help your child is a blessing. Not every parent has the luxury to help their adult children have a house that they can call their own. But before you sign any contract, it’s best to know what you’re getting yourself in.
There are many ways you can help your adult child get a home. One way is to gift them a deposit. Gifting a deposit is when you give the sum of money to pay the entire deposit or at least a portion of it. Gifting a deposit will not only help your child gain access to a home loan, but it can also give them access to competitive rates.
Lending them money
Another way to help them out is by lending them money. While borrowing money from a family member to pay for a mortgage down payment is an ideal alternative for gifting money, it is still considered as a loan for a mortgage application. So lenders will still add the repayments on top of their monthly mortgage payments. It can affect the borrower’s financial assessment, thus possibly reducing the size of the mortgage that they can apply.
You can also let them add your name as a guarantor for their mortgage. Most of the time, products that allow this kind of setup are labeled as 100% mortgage since borrowers can sometimes apply as much as the entire value of the property for a loan. However, this can be a tricky setup since the lender will place a charge against your property. Once that happens, your house can be at risk if ever your adult child defaults on their home loan payments.
A joint mortgage is another goodmortgage optionto help them get a loan. You can buy a property together with your child so that they can apply for a joint mortgage. It is a kind of investment that allows a borrower to get a more expensive house. Their parents’ monthly income will be taken into consideration when computing for the property’s affordability. However, applying for a joint mortgage has its consequences. Defaulting on monthly mortgage payments can hurt your credit score since your credit records are linked to your child’s.
One option that you can also look into is remortgaging your property so that you can fund a deposit for your child’s. It is a huge and serious commitment that you would have to make; it will cost you more interest in the long run. It can even put your house at risk.
There is nothing wrong with helping your child. As long as you have the means to do it, then giving them a slight nudge can help them live a more secure life in the future.