Should Mum & Dad get me a mortgage?
Q: Mum and Dad want to help me buy my first property. They said that the bank can link their home plus put Mum and Dad on the loan so I get approved. Is this a good idea?
A: One Person, one loan, one property. Stick to this and you can’t go wrong.
It’s a different lending world these days. Generation x and y’s are able to access loans far easier than their parents. I can still remember my parents getting dressed up to beg for a loan when they were younger.
It’s very old age thinking to link properties and to have numerous applicants guaranteeing the loan. Lenders love linking or crossing properties together. They call this ‘Cross-Collaterisation’. Apart from this, Lenders will try to put as many applicants (guarantors) onto the loan application as well. This puts the Lender in the power position as they have secured Mum and Dads house with your property, plus three people are on the loan?
This is crazy!.
What I would do is get Mum and Dad to organize a Line of Credit with their current provider. While this is getting set up, go to a different lender to get pre-approved for yourself. Once both loans are ready to go, you are right to go shopping. When you buy your first property, it will be in your name only. This is a better structure where you have the power not the lenders.
Question answered by Paul Giezekamp, director of Property Secrets.