6 Areas To Consider When Getting First Home Help From Parents
Buying Your First Home With A Little Help From Your Parents
Young New Zealanders looking to purchase their first home will likely need quite a lot of equity to be able to do so. This would mean that most will probably require help from their parents. Following on from recent blog posts, Yolande from McVeagh Fleming provides some guidance for those looking at the option of getting first home buying help from your parents.
Obviously this is recognised by most lenders and therefore lenders are agreeable to first home buyers getting help from their parents.
The usual ownership structures that lenders may suggest or approve may be one of the following:
- the child purchasing the property in their own name and then getting help from their parents or the parents’ Trust; or
- a couple purchasing the property with a friend and they acquire the property as tenants in common with assistance from one set of parents or both sets of parents; or
- the property is brought by the parents providing a guarantee to the bank; or
- the child is purchasing the property in co-ownership with the parents and the shares are then held as tenants in common; or
- the Family Trust purchases the property on behalf of the child.
Issues that should be considered in terms of above structure(s) would be that:
1. Well Informed Parents & Children
Both parties (i.e. the child and the parents) would need to be well informed in the decisions that are being made and how this will be sorted going forward.
2. Allow A Good Amount Of Time For Legal Work
There would be quite a lot of work that would be involved with ownership structures such as above and both of the parties will need to consider and ensure that sufficient time is being allowed for all works to be completed in advance and prior to the settlement date.
3. Input From Parents On Intended Property
The parents may want to have a lot of input in terms of what property the child is purchasing and also in terms of the offer the child is wanting to make in terms of the property.
4. Any Conflict Of Interests
There will definitely be conflict of interest to be considered and, in those instances, solicitors would most likely insist that each party seeks independent legal advice. It would therefore be wise to establish at the start whether this would be the case and ensure that each party inform their separate solicitors of the transaction taking place. If the parents are giving a guarantee then independent advice and seeing and independent solicitor would definitely need to take place.
5. Limited Or Unlimited Guarantee
Whether the guarantee will be unlimited or limited to a certain amount. Obviously in terms of the parents giving the guarantee it would be prudent to negotiate a limited guarantee in advance of loan/security documentation being issued (ie when lending criteria and requirements are discussed) rather than the parents entering into an unlimited guarantee. However the lender will confirm what their requirements are in terms of same.
6. Consideration For Complex Parts Of Ownership Structure
Consideration will also need to be given to the complexity of the transaction. For example the parties should be aware of what a Property Sharing Agreement, Contracting Out, Guarantee (whether limited or unlimited), a Deed of Acknowledgement of Debt and Deed of Gift achieves and the ramifications to each party entering into such additional documentation.
Lenders will obviously have quite a big say in whether the money being provided by the parents would be done by way of guarantee, by way of Deed of Acknowledgement of Debt (i.e. a loan) or whether it should be a gift. Generally lenders would suggest that rather a Deed of Gift than a Deed of Acknowledgement of Debt should be entered into.
Above is a very brief summary in terms of parental support structures and should be thoroughly considered by young persons and parents alike.
It would be prudent to, as soon as you decide to purchase a property with the assistance of your parents, that you contact a solicitor to discuss matters fully.
It would also be very important that once a decision is made in terms of the structure of above support that young persons and parents alike ensure that their Wills are up to date to reflect the situation. If there is any Family Trust involvement, they need to make sure that the Memorandum of Guidance also reflects the situation. Parents will also need to give some consideration and thought to ensure it does not affect any retirement planning they might have.
So while getting first home help from your parents can be a very worthwhile opportunity for those able to do it, there are plenty of considerations to make. Should you be interested in setting up an ownership structure involving your parents, get in touch with Yolande via the below details.