Monday 17th July 2017

Should you get help from your parents with buying a home?

Should you get help from your parents with buying a home?

The cost of buying a home in Australia is spinning out of control, especially if you’re looking in one of the larger metropolitan areas. According to new research from LF Economics, the median price of a house is now 10 times the median annual wage in Melbourne; in Sydney, that same ratio is 13 times.

Spending more than a decade’s pay on one single purchase is not feasible for most Australians. Some, when they can’t afford to buy new homes themselves, get help from their parents instead. Is this a wise idea? If you’re considering asking your family for financial assistance, what are the pros and cons you need to consider?

A diverse range of options

The good news about getting help from your family is there’s a wide range of ways to do it. US News and World report notes that if you ask your parents for assistance with buying a house, they can provide it in a few different ways:

  • The down payment: Some mums and dads simply gift their kids a large stack of cash to make the deposit on a home, then trust them to handle the mortgage repayments from there.
  • A family loan: Loans from your parents are always better than from a bank; parents can offer lower (or no) interest rates and be more forgiving about repayments.
  • Acting as co-borrower on the mortgage: If your income is too low to qualify for the mortgage you want, your parents can go in as a co-borrower.

Are you really reducing risk?

The downside to getting parental help is that it probably won’t really reduce risk overall, according to News.com.au.

“This spreads the risks but does not reduce it, which extends the links in the chain of Ponzi finance,” LF Economics founder Lindsay David said.

David argued that because parents are assuming “large, open-ended liabilities” to help their children, they often find themselves adding financial risk for the family overall. It’s possible that instead of parental help, the better strategy is to have Australian mortgage brokers who can help you get favorable home loans.

Getting home loans that will really help

The real estate landscape is complicated, and making a poor decision can set you back financially for a long time. If you work with us, we’ll give you all the insights you need to make smart decisions that will help you buy a house and protect your financial future.