The Role of Parents in the Plans of First Time Homebuyers
The bank of mum and dad – you may have heard of this before and most probably you already know what this is. The bank of mum or dad is a term that is basically about getting financial support from your parents if you’re one of those looking for your very first home to purchase. Back then, buying a house is not as complicated as it is today, but with all the lending restrictions and rising house prices, borrowing money from your folks seems to be the default nowadays.
According to experts, the bank of mum and dad is the ninth largest home loan lender in Australia. It’s considered much larger than banks such as the Bank of Queensland. A loan from parents is crucial for first-time homebuyers in order to gather the home deposit that they need for that approval. The royal commission into banking will reportedly impose stricter rules on home lending.
Now the question is, will the money from parents impress banks for that loan? Experts are saying that there might be a few changes as to how this will be seen.
While of course, it is only natural to help out your child financially especially when purchasing a property, experts are saying that parents need to think twice about doing so. Starting July 1, all major banks will adopt the new banking code practice which would make it more difficult for anyone who had previously borrowed money from their parents to get approved from a loan. Thorough checking will be done to find out if you have good savings habits. More questions will be asked, and more sleuthing will be performed.
More bank statements, expenses, and savings history will be asked by banks to ensure that a person applying for a loan can pay. Guarantors will be asked to do a three-day cooling-off period to think very carefully before signing contracts. They are also recommended to seek some legal advice so that they will know the risks to face if they underwrite their children’s loans.
What do you need to do if you decide to borrow money from your parents?
Experts cannot stress enough the importance of having a formal agreement between parents and children in terms of loans. There are things to consider like the worst-case scenarios or sudden changes like if the parents happen to separate or divorce? These matters should be taken seriously because they might mess up the whole plan later on.
As a buyer, you must not rely on your bank to let you know how much you can afford to repay. It’s best to make the computations yourself so you will know how much you are comfortable repaying.
As for parents, a line must be drawn when there’s money involved. Kids must understand the value of saving up so experts are suggesting that you think hard about lending your hard-earned money.
The housing market is showing signs of strength right now but it may not happen again, which makes a lot of sense why parents are trying very hard to get their children into the property market.