We often have clients asking us how they can support their children in buying their first home or first car. So here are some practical tips from Nichole McManus and Brent Dickson, home loan and vehicle loan experts, who’ve helped many of our clients to support their children with these major purchases.
The right approach will depend on your family’s financial situation and your child’s goals, so it’s worth understanding the options before making any decisions.
Helping with a first home
Saving a deposit is often the biggest hurdle for first home buyers. Fortunately, there are several ways parents can provide support.
One option is gifting money towards a deposit. A larger deposit can reduce the amount your child needs to borrow, potentially avoiding Lenders Mortgage Insurance (LMI) and making home ownership more affordable.
Understand the genuine savings requirement
If you’re planning to gift money towards your child’s deposit, it’s worth checking how this may affect their home loan application. Some lenders require borrowers to demonstrate “genuine savings” – money they have consistently saved themselves over a period of time. While a gifted deposit is accepted by many lenders, some may still expect genuine savings depending on the size of the deposit and the amount being borrowed. We can help you understand each lender’s requirements and structure the application in the most effective way.
Family loan
Some parents choose to lend money rather than gift it. This can provide flexibility while allowing parents to establish clear expectations around repayments. It’s important to document any family loan arrangements to avoid misunderstandings in the future.
Acting as a guarantor
Another option is acting as a guarantor. A family guarantee allows parents to use equity in their own home as additional security for part of their child’s home loan. This can help eligible buyers purchase sooner with a smaller deposit and may reduce or eliminate the need for LMI. However, acting as a guarantor does involve financial risk, so it’s essential to understand the responsibilities before proceeding.
Support with savings
Parents may also consider helping with ongoing savings. Contributing regularly to a dedicated savings account can help children build a deposit faster while encouraging good financial habits.
Supporting their first car purchase
For many young adults, owning a reliable car is essential for work, study and independence. Whether buying outright or financing a vehicle, it’s an opportunity to build healthy financial habits.
If your child plans to borrow money for a car, one factor lenders often consider is their credit history. In Australia, having little or no credit history isn’t necessarily a bad thing, but establishing a positive credit file can be helpful over time.
One simple way to begin building a credit profile is by placing a mobile phone plan or other eligible utility account in your child’s own name. Making every payment on time demonstrates responsible financial behaviour and contributes positively to their credit history.
It’s equally important to avoid missed payments or defaults, as these can remain on a credit report for several years and may affect future borrowing capacity. Encouraging your child to pay bills on time, live within their means and avoid taking on unnecessary debt can set them up for long-term financial success.
If financing a car, choosing repayments that comfortably fit within their budget is also key. Borrowing more than they can realistically afford may make future lending, including a home loan, more challenging.
Every family is different
Obviously there’s no one-size-fits-all solution when it comes to helping your children financially.
Whether you’re considering gifting money, becoming a guarantor, helping them establish a positive credit history or simply exploring the options, professional advice can help you make informed decisions.
If you’re thinking about helping your children purchase their first home or first car, give us a call. We can explain the available options, discuss the benefits and risks of each approach, and help you find a solution that suits both your family’s goals and your financial circumstances.