Nan and Pop have long been known for the old tradition of being good for birthday money. However, a new trend sees one in ten grandparents now taking their generosity to new levels. Yes! They’re supporting their grandchildren to buy a first home.
Most amongst us have some special memories of enjoying a few treats from Granny and Gramps. Those small gestures of affection we cherished as children are evolving into something far more impactful than the occasional treat before dinner or a surprise Lego set.
Research conducted by Compare the Market reveals that nearly three-quarters of Australian grandparents are providing financial support to their families. Amongst them, approximately 13% are offering loans, 9% are assisting with household expenses, and one in ten are contributing to their grandchildren’s dream of buying a first home. This tendency highlights the enduring significance of grandparents’ kindness.
But if your Gramps & Granny are keen to help you get started in the property market, it is important first to have some open conversations.
How can grandparents help in buying a new home in Australia?
For a new home buy for the children, grandparents can play an important role. One option can be through acting as a guarantor for the first-time home buyer’s loan. But this involves a potential risk as it could leave Nan & Pop financially vulnerable if the borrower defaults on timely home loan repayments.
Another option involves gifting money, which can be a secure way to support their grandchildren’s first home buy in Australia. This monetary gift can assist their grandchildren with the down payment and reducing financial strain.
Things to be taken care of while helping grandchildren buy their first home
A cash gift, no matter how modest, can have a substantial impact on a first-time home buyer’s journey. Although even a small contribution helps boost the deposit or cover upfront buying costs like lenders’ home loan insurance, it is important to navigate the potential pitfalls carefully.
When receiving a lump sum of cash from your grandparents, it is common for the lenders to ask about its origin to ensure it is not a home loan that needs repayment. To avoid difficulties, grandparents can draft a simple letter clearly mentioning that the money is a gift with no repayment expectations. In addition, it is essential to ensure that grandparents are of sound mind when making such gifts to avoid any involuntary financial strain on their retirement or family disputes.
While the support of family members in buying a first home in Melbourne is vital, it is necessary to approach it with caution. Through discussions on the various ways family can offer help, including financial gifts and other forms of support, most of the potential risks can be mitigated.
To explore how your family can help you achieve your homeownership goals and buy your first home, reach out to Loan Junction today. We are just a call away!!
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