Help your kids buy a home
Improve their loan profile, teach about repayments
OWNING your home is synonymous with financial stability and parents can play a vital role using their healthy credit profile to help their children purchase their first home.
FNB home loans channel manager Monde Motha says that “as a home will probably be your child’s biggest asset in their life, it makes sense to help them out as a parent. But there are a few aspects to consider when deciding to help your son or daughter buy their first place which will help them get their best start as a home owner.”
Generally as you are older, you have the benefit of joint incomes, an established credit record, as well as better earning power, he notes. “Without these aspects, it is more difficult to raise money for a deposit, get a loan from a bank, as well as maintain the bond, making owning a home a daunting prospect for any young adult.”
According to the FNB Estate Agents survey, firsttime home buyers made up 28% of total investors in the sector in the second quarter of this year. First and foremost, it is important to establish why your son or daughter wants to be a home owner and whether they are being realistic in what they want, says Motha. “Buying your first home is a big step, and also a very big financial commitment. Your child needs to understand that repayments will account for a big chunk of their monthly income, which may mean they aren’t able to afford additional expenses such as studying further or trips away with friends.”
It is not only a big financial commitment, but also a long term commitment. Not only should you discuss the financial implication in detail, but what plans they have for their future, are they still planning on travelling, what will happen if they change jobs, or cities?
“If they don’t have a reasonable plan for at least the next few years, they possibly shouldn’t be committing to a 20-year bond.”
After establishing need, affordability is key to home ownership. Carefully go through all the aspects of home owning that they may not be aware of including legal costs, bond registration costs, how much they have in terms of a deposit as well as how they plan to finance their monthly bond costs.
“Remember to teach your child not to be fixated on the cost of the property alone when assessing affordability but to consider it in its totality,” says Motha.
They will have other ongoing fees on top of their monthly bond repayments. These fees include household insurance, levies or municipality bills, electrici- ty and water as well as general maintenance.
“It is helpful to run through the different scenarios with them. Use tools at your disposal such as property affordability tools, to understand all the costs involved in the actual bond,” suggests Motha. “Show them your own examples of municipality bills, household insurance premiums, and estimate costs involved on top of their bond repayments.”
You can also suggest ways of relieving the financial pressure, especially in the first stages of bond repayments, such as bringing in a housemate as a temporary measure, he suggests.
One way of helping your son or daughter buy their first home, is to stand surety or do a joint application, he says. “FNB and other banks offer loans to multiple applicants, this means you can be considered part of the loan agreement and your credit and financial position will be taken into account when assessing the loan.
Depending on the number of people applying for the loan, a person signing as a joint applicant is considered as a part of the application and all of the parties involved are subject to the credit assessment process.