Obtaining additional funds from Mum and Dad to help purchase your first home – great! But what are the risks and what do you need to be aware of?
It’s a loan…. No wait it’s a gift?
The first thing you need to be aware of is whether mum or dad’s cash injection is a loan or a gift. If it is going to be a loan, your parents may want to own a share in the property. Money borrowed from the Bank may require mum and dad being a guarantee over the amount you are borrowing.
It is therefore important a Property Sharing Agreement is prepared which records everyone’s expectations of the ownership of the property. We can guide you through this process.
Whose responsibility is the loan or debt?
If Mum and Dad are gifting you money towards your purchase, it is a shared responsibility between all parties to decide if the loan or debt will be a:
- joint debt between you and your partner; or
- gift; or
- debt to their child only.
In the event you separate from your partner or there is an unexpected death, it is important to discuss what will happen with the debt or loan to prevent any dispute.
Having the correct documentation in place with good legal advice, a loan from ‘the Bank of Mum and Dad’ can be a good, stress fee way to get into the property market at an affordable cost.