Many younger, first-time home buyers are burdened with student debt and rising home prices. This financial challenge has created a situation where many parents have stepped in to help their children to save for a down payment for their first home. Owning a home shouldn't have to be a luxury. We have helped thousands of families get into their first home, but it's important for parents who want to help their children, to understand how to minimize the risk to their own financial health. We can guide you to help your children make the dream of home ownership a reality.
Make a financial gift
Many parents have put money aside for a "rainy day" or have cash savings invested in a savings account. As a parent, there are no limits to the financial gift you can give to your children without paying taxes, as long as you do not have the money invested in a taxable account or asset.
Access your credit
If, as parents, you are debt-free and have a line of credit or have equity in your home, giving your children money from those accounts is a great opportunity to help without significantly impacting your cash flow. Often, as an older homeowner, you will have much more equity available to you and at a much lower interest rate.
Many families have a clear will and structured inheritance plan in place, but sometimes, being flexible and providing access to money or investments while you are still alive is a great way to help. Even with early withdrawal fees or having to pay taxes, it can save your children from being priced out of the market altogether.
Alternatives to giving money
Not every family is able to give a financial gift or loan to their children to help them buy a home. However, there are other ways in which you can help.
Financial management is a constant learning process. A little bit of financial parental advice can go a long way. Educating children of any age about the benefits of a Tax-Free Savings Account (TFSA) – that allows them to invest money, tax-free – is one great way to encourage accessible, value-added savings. There are also programs like the Home Buyers’ Plan (HBP) that allows first-time homebuyers to withdraw up to $35,000 from their RRSP, tax-free, to apply to the purchase of a home. You can also read our blog about First-Time Home Buyers for more information about programs to help your child fund their down.
Co-sign your children’s mortgage
Acting as a co-signer for your children's mortgage can sometimes be the help they need to get approved for a mortgage. If you are financially secure and have good credit, and believe they are reliable borrowers, you can help fill the financial gaps that a younger person may have, whether they have a low income or low credit score. However, it is important to consider that, once you have co-signed for the mortgage, late or missed payments will negatively affect your credit score as well. If you're not confident that your children are ready for the commitment of a mortgage, it may be better to set some more manageable financial goals for them until they are ready.
Just because your child can’t qualify alone doesn’t mean they can’t qualify at all. Consider pooling your resources and reach out to discuss our Multi-Ownership Mortgage. As long as your child has solid credit, you can apply with them to pool your resources to meet the criteria to qualify for a mortgage.
If you are lending your children money or acting as a co-signer, it is important to, not just think about how to get the mortgage, but how will they pay you back or transition to removing you as co-signer. If you’re going the route of co-ownership, there are longer-term considerations and implications that need to be weighed before you sign. Even as a parent, it's a good idea to put some sort of agreement and timeline into place, to ensure that everyone understands what is required so there are no bad feelings down the road.
Every family's situation is unique and our team is here to work with you and your children to get that mortgage pre-approval.
If you’re ready to get started, give us a call today and let’s work together to help your children achieve that dream of home ownership.