PARENTS HELPING THEIR KIDS TO BUY THEIR FIRST HOME

10 May 2018

Parents can be great mentors in financial management and there are several ways parents can help their kids to buy a home of their own.

 

KIWISAVER:            Parents can get their kids in to Kiwisaver from early childhood.  As soon as they are signed up they receive the Government contribution which starts earning interest. Family can contribute to increase this further.  The earlier they start the more interest they can earn.  When the kids start working and contributing to their Kiwisaver themselves, their employer will also make contributions.  Then when the kids have been contributing for at least 3 years they are eligible to withdraw the contributions they and their employer have made and use this towards their deposit on their first home.  They may also be eligible for the First Home Buyers Grant which is $1,000 per year they have been contributing to their Kiwisaver (up to $5,000 per person). 

 

GUARANTOR/JOINT BORROWER:      A parent can offer a property that they own as security for part of the loan.  This means their kids can purchase a property with as little as NO deposit.  The advantage of this is that the parents don’t have to put in any cash.  The disadvantage  is that if the kids consistently default on their loan the parents could be at risk of having to repay the portion of loan secured by their house or losing their house.  This option should not be considered lightly and there is quite a process to go through to ensure that this is indeed the best option.  It should be noted that with new Reserve Bank restrictions that the lenders now are insisting that the “Guarantors” be joint borrowers on the loan that is secured by their property.  While this increases their involvement it doesn’t increase their risk.  Being more involved means that the parents are able to keep an eye on the loan and be notified earlier if the loan falls in to arrears.

 

 

GIFTED DEPOSIT: Parents can give money which the kids can use as a deposit towards the purchase.  The advantage of this is that the parents can help the kids in to their home without compromising their security.  The disadvantage is, of course, parents having to come up with that cash which they may have set aside for something else.

 

GIFTING OF EQUITY:        Sometimes parents own a property that they want to sell to their children at a reduced price.  Often this can be worked so that the Kids can purchase this house for little or no actual cash.  The advantage of this is that no money exchanges hands and there is no risk from the parents’ side.  The disadvantage is that the parents are getting a lower amount for their property than if they sold it on the open market.

 

Helping our kids in to a home of their own can be as inexpensive as simply pointing them in the right direction to get the right information.  Knowledge is power and empowering our kids to get in to a position where they can own their own home is perhaps the greatest gift of all.   

 

Published In The Whakatane Beacon

This post was written by

Trish Marsden - who has written 96 posts

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