Family ties are strong and most parents want to help out their children whenever they can, even when those kids have grown into adults and need debt help. When it comes time to buy a first home, many people turn to their parents if they do not have enough funds. Parents want to do everything they can to help but just giving money might not be the best thing to do for both their sake.
Lending to your children
A down payment on a home is secured in order to make sure that the person buying a home has some stake in the property and the amount of deposit is relative to the price of the home. If parents give their kids the deposit on a house then they might not be helping them as much as they think. By saving up for the deposit on a house, the new home buyer gains an understanding of what it is like to put their hard-earned money into a home but it also sets valuable limitations on how big of a home they can buy. If the parents help foot the bill for the down payment by lending them money then the parents might be getting their kids locked into a home that they cannot afford and should have never bought. The child will end up having to get debt help again.
Lending money to children to buy a home has some other potential drawbacks. If the money is actually a loan and not a gift it will be looked at as a loan by the bank and it can make it harder to purchase the house. It is better for everyone if the conditions for the money are set out in a contract so that there is no grey area. If the money is not a loan and is a gift then there is always the potential of that money being totally lost if the house is foreclosed on. In the unfortunate event of a divorce between the child and his or her spouse then the property might be split between the two and the parents inadvertently gave their child’s ex-partner a payday.
If you are a parent considering helping their children with debt, lending money, or gifting money then you should reach out to Australian Debt Agreements for a free consultation to make the smartest financial arrangements and agreements to help your kids have a strong financial future.