The term “Bank of Mum and Dad” is becoming less and less unusual these days. It refers to the practice of parents financially assisting their adult children with expenses, especially when it comes to buying a home. In this case, the Bank of Mum and Dad is usually a joint borrower, sole proprietor arrangement where two individuals, typically a parent and their child, become joint borrowers on a mortgage, but only one of them, often the child, becomes the sole owner of the property. Reasonings behind this can include helping the child qualify for a larger mortgage or secure more favourable lending terms based on the combined income and creditworthiness of both borrowers, while allowing the child to be the sole owner of the property.

What you need to know:

• Joint Borrowers: Both the parent and the child are listed as borrowers on the mortgage application. This means both their incomes and credit histories are taken into account when determining the mortgage terms.
• Sole Proprietor: Despite both being borrowers, only the child’s name is on the property title, making them the sole owner of the home.
• Financial Support: The parent’s income and creditworthiness can help the child qualify for a larger mortgage amount or secure a more favourable interest rate. This can be especially helpful if the child wouldn’t be able to meet the lender’s criteria on their own.
• Ownership Agreement: It’s important to have a clear agreement in place between the parent and the child regarding the ownership and responsibilities associated with the property. This agreement should outline how the property’s expenses, such as mortgage payments, property taxes, and maintenance, will be shared or managed.

This arrangement can be a way for parents to help their adult children become homeowners while still maintaining some level of control over the financial aspects of the property. However, it’s essential for all parties involved to have a thorough understanding of the legal and financial implications, as well as to consult with legal and financial professionals to ensure the arrangement is structured appropriately and that everyone’s rights and responsibilities are clearly defined.

At Hallcroft Finance, we can discuss with you these consideration and provide proper guidance to this alternative homeownership strategy.

Ready to start? Reach out to the team and let’s make your dream home a reality.