7 ways parents can help their kids become homeowners

7 ways parents can help their kids become homeowners

It won’t be news to anyone that housing in Toronto and the GTA is getting less and less affordable – especially for first-time buyers. Even those with established careers and great incomes are finding themselves priced out of the market. That’s why more and more parents are tapping into their own savings to help their kids become homeowners

So how can you help your kids buy a home?

According to James Harrison of Mortgages.ca, there are a number of options — and you don't have to have a gazillion dollars saved or jeopardize your retirement to help get your kiddos on the property ladder. 

1. Give them the money as a gift.

“It’s a great way to give them part of their inheritance now, tax-free,” says James. “If you can help them get to 20% down (or more), that will help significantly with buying power – and they won’t have to pay for SMHC insurance. A lot of my clients’ parents have used their lines of credit or refinanced their homes: it's a more tax-efficient way to give money than selling investments and triggering capital gains, even with rising interest rates.” 

Read more: Gifting for a down payment – perspective (CIBC Capital Markets) 

2. Lend them the money.

If they need an extra $50K and the bank is saying no, you can be the Bank of Mom and Dad. Be very clear about repayment terms, though. Having paperwork in place can be very helpful if a couple splits up or your child has creditors – or if they default on their repayment.

3. Co-sign or be a guarantor on their mortgage. 

Adding yourselves to the mortgage will give your kids more borrowing (and buying) power. They'll be able to qualify for a bigger mortgage and make up for any issues they might have in their credit history. 

The downside? There are a few risks to being a co-signer.

  • If your kid defaults on the mortgage, your credit rating could take a hit – and you'll be on the hook for payments. 

  • If you want to buy another property down the line, or borrow to do a reno on your current home, what’s owed on your child’s mortgage will be seen as your debt, and limit how much you can borrow. 

  • Should your child split with their live-in partner, you could lose money to the ex. 

There are ways to mitigate these issues, however: a mortgage broker or real estate lawyer can help. 

4. Buy a property together. 

Whatever you call it – co-ownership, a joint investment or a real estate partnership – this is a great option for parents who want to get their investment back when the home is sold. Whatever percentage you put in (e.g. 25% or 50%), that's what you'll get at the end. Or you can let your kid buy you out over time once their portion of the mortgage has been paid.

Make sure it’s very clear what percentage of the home everybody owns, how ongoing costs will be shared, and how you will deal with things like renovations. 

5. Buy the property yourselves, then transfer ownership later and pull out your equity. 

This is a great option for parents of students who are coming to the GTA to go to college or university. You can buy a place for them to live in while they're in school, then once they graduate and are working, they can take over the mortgage payments. 

Once enough equity has built up (or the property has appreciated in value), you can pull out what you put in, plus any appreciation (win for you). They don't have to worry about getting a big down payment together, and benefit from a lower purchase price than they’d end up paying if they waited to buy (win for them!) 

Read more: Benefits of buying a condo for your university student to live in

6. Help them buy a multi-unit property. 

Buy a property with rental potential (a basement apartment for extra bedrooms) that can be rented out to offset costs and pay down the mortgage faster. 

7. Let them live with you while they save their down payment. 

Don't have much cash or equity to spare? Offer up a free (or cheap) place to live. GTA rents are nuts, and not having to shell out $2,500 or more a month will add up fast. 

Another option: they can buy a small property and rent it out to someone else while living with you for a couple of years. They'll build equity and save a ton, which means they’ll be able to buy something with a higher price tag down the road.

“I bought a studio downtown and my parents helped me with my down payment,” says Arvin Reyes, Sales Representative. “I've rented it out while continuing to live at home – so I'm building equity while living rent-free. Buying your first place doesn't have to be a grand investment. You can start small.” 

Read more: Saving up for your down payment – 17 smart strategies

3 things to consider before you jump in

A. Don't jeopardize your financial health to make ownership happen for your kids.

Will helping your kids mean you can’t renovate your home or take that trip you’ve always dreamed of? Will it mean you have to postpone retirement? Be careful about taking on too much debt and compromising your ability to pay your own bills – or having the retirement you want. 

B. Adjust your expectations.

Their first home doesn't have to be a house – it can be a small condo. And it doesn't have to be in the exact neighbourhood they (or you) want. A first home is a stepping stone. After a few years of building equity, they'll be able to afford something more in line with their dreams.

C. Be aware of the emotional cost. 

When money is involved, family relationships can take a hit. If you have more than one child, can you help everyone in the same way? Will you feel resentful if your kids take an expensive vacation instead of paying back your loan? What will happen if your child splits up with her partner? Or if your single kid gets married and it becomes a marital home? 

Have lots of discussions before any promises are made and any money changes hands. And talk to a mortgage broker and a real estate lawyer, too – they'll be able to help you figure out the details.

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