If you a room full of money secured somewhere out in the country, then it would be very easy for you to simply unlock that room and hand your kids the kind of money they need to buy their first home. Unfortunately, for many of us, this room full of money somewhere in the country is about as real as Unicorns prancing about in a meadow full of golden apple trees.
So, how do you help you kids buy their first home?
For those of us who do not have huge chunks of money to put down on our kids’ first homes, there really is no need to despair. Nowadays, most lending companies are coming to the terms with the fact that parents and even grandparents want to help their children climb up the property ladder. That is why they have come up with several lending options that target this very group. Here are some that you should probably consider:
This is one such option. Many lenders are often willing to extend parents and grandparents what is known as a ‘Guarantor Mortgage’. Basically, this means that the parents will act as guarantors for the loan that their children will get. Meaning that they would have to put up their house as collateral. The parents, however, need to have a hefty chunk of equity on the property (mostly 25%). This will allow their children to get a sizeable mortgage with which to buy their first home.
Should the children keep up with the monthly payments then the parents have nothing to worry about at all. The problem comes in when your kids decide, for whatever reason, to default on their payments. You, as the guarantor, would either have to make up for the shortfall or, in the worst of cases, remortgage your home and even have it repossessed.
There are several lending institutions such as Woolwich that are amenable to this arrangement. Basically, the parent and the child will jointly take out a mortgage on a house for which they will be both responsible as far as repayments are concerned.
Because the parent will not be living there, it is advisable to structure the property ownership as ‘ tenants in common’ with the ownership weighing in favour of the child. Otherwise, the parent might be facing hefty capital gains taxes on their share of the property.
Just buy them the house
There is a very good chance that your credit rating is far better than that of your child. If this is the case, then you can simply take out the loan in your name, buy them the house they need and have a formal agreement on how they are to pay you back. This kind of agreement would require the child to send you the monthly mortgage payments as well as foot every other bill that comes with property ownership.
All you will be doing here is using your good name and credit to buy a house that you will then hand over to your kids. You, however, are legally responsible for all the financial responsibilities that come with taking out the loan. For that reason, it is often best to be prepared to pay back the loan yourself should your kid pull that old, tired trick of letting Daddy/Mummy handle it.
There are several other options, but you would have to speak to your preferred lending company to get the exact details that apply to your particular case. Either way, if you are really bent on helping your kids get their first home, there is a good chance that you can do so without very much ado.Tags: guarantor mortgages, how parents can help their kids secure a loan, how to help your children get a home loan, how to help your kids secure a home loan, joint mortgages