Buying a house with your parents? How it works
You can
buy a home with anyone
–
siblings
, parents, extended family, or even
friends
.
With high property prices across the country and
the rising cost of living
, many young borrowers get help from their parents to buy a home.
Our
2021 Bank of Mum and Dad report
found that the average parental contribution to a child’s home deposit is at $70,000 with an overall contribution of about $134,200.
But did you know that instead of getting gift money from your parents, you can buy a home jointly?
How to buy a home with your parents
By teaming up with your folks you might be able to get a foot in the property market sooner rather than later. For example, your parents could add to your deposit or maybe use the equity from their home to help you cover the costs.
When buying a home with someone else, you should also decide the ownership structure so you can figure out your finances. After all, both you and your parents will be responsible for repaying the home loan . That includes covering the other’s share if one of you falls behind on repayments.
Ownership structure
Just because you’re co-owning your home with your folks doesn’t mean everyone will have an equal share of the property. That’s why it’s important to figure out what sort of ownership structure you’ll have.
Joint tenancy
In a joint tenancy, everyone on the property title has an equal share of the property and if someone dies, the surviving members absorb full ownership of that person’s share. This ownership structure might seem like the most ideal or fair but it could complicate things if someone decides to go their separate way. Also, you don’t have the right to sell or transfer individual ownership because you all own the property as a group.
Tenancy in Common
This is a more flexible form of co-ownership because it allows two or more people to have a share of a property. For example, those in the deed can have an equal share of the property or varying shares, like 80-20. Also, if later down the line someone (let’s say your parents) wants to exit the arrangement, it makes it easier to sell their part of the property.
Pros and cons of joint property ownership
Joint ownership is quite common in the property market world, but remember the more people involved the more problems you may face. So make sure to weigh up the pros and cons carefully before committing to buying with your parents.
| Pros | Cons |
| Enter the property market quicker: With Australia's property market getting more expensive, buying with your parents may be a way to get your foot in the door faster than expected. | Everyone is liable for the loan: If your parents' financial situation changes and they are unable to make their mortgage repayments, you’ll become responsible for the full loan repayments. Contrary to popular belief, if you have a joint loan for $400,000, everyone involved is liable for the full amount, not $200,000 each. |
| Borrowing less: Having your parents join your home buying journey could help you borrow less money, allowing you to potentially have smaller and more affordable repayments. | Future borrowing power decreases: If you ever want to take out another loan, the existing loan will affect how much you can borrow in the future. The bigger the loan is, the less you may be allowed to borrow in the future. |
| I ncrease your buying power: By using financial help from your parents you may increase your deposit and be able to afford to buy a bigger first home. | Financial needs may change: If you do a joint tenancy and you want to sell the house in the future but your parents don’t, things can get a bit messy. Or maybe you think it might be smart to refinance but your folks disagree. |
Alternatives to joint ownership
If you don’t like the idea of co-owning with your parents, there are other ways they can help you to purchase a property. Here are a few below.
Consider getting a guarantor
A
guarantor
uses their existing property as security for part or all of your loan. The guarantors don’t have to cover the full amount of your loan: they could cover 20% of your property price, for example, which removes the need to take out
lenders' mortgage insurance
. They also agree to take responsibility for your mortgage if you
default on your repayments
.
When looking for a guarantor, consider someone close to you. Typically lenders only allow immediate family members to act as guarantors.
Gifting you some money for a deposit
Parents who gift their kids money for property give an average of $70,000, according to Mozo’s Bank of Mum and Dad report. Being gifted this money can increase your borrowing power and help you buy your dream home.
Buying property under your name
This option might not be for everyone, but about 11% of parents purchased property on their kids’ behalf. This allows you to live in the home while your parents are responsible for paying off the loan.
If you’re looking to buy property soon, make sure you’re getting a good deal from a bank or lender. Don’t forget to compare home loan costs and features with a few of the options below.
