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Home ownership is a dream for many Canadians, but — for the millennial generation — it’s a dream that’s increasingly unattainable on their own. As a result, more and more parents are stepping in with financial help to nudge open the door to home ownership for their kids. From legal and financial obligations to the impact on the parent-child relationship, here are some key factors to consider if you’re thinking of helping your adult children buy property.
Real Estate
Considering Helping Your Kids Buy Property? Here’s What You Need to Know
August 2, 2019
Home ownership is a dream for many Canadians, but — for the millennial generation — it’s a dream that’s increasingly unattainable on their own. As a result, more and more parents are stepping in with financial help to nudge open the door to home ownership for their kids. From legal and financial obligations to the impact on the parent-child relationship, here are some key factors to consider if you’re thinking of helping your adult children buy property.
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Millennials Want to Be Homeowners
1/18Millennials Want to Be Homeowners
1/18Photo Credit: Getty Images
The desire to own your home spans generations, but the reality of home ownership is unattainable for the majority of young people. As outlined in a recent <a href="https://www.osc.gov.on.ca/documents/en/Investors/inv_research_20171127_missing-out-report.PDF" rel="nofollow" target="_blank">report on Millennials and the Markets</a> by the Ontario Securities Commission (OSC), only 33% of millennials are homeowners — though 56% of millennials who don’t own their homes felt that home ownership is a top financial priority. <br><br>Related: <a href="https://www.hgtv.ca/real-estate/photos/income-required-to-own-a-home-in-canadas-hottest-real-estate-markets-1927951/" rel="noopener" target="_blank">This is the Income Required to Own a Home in Canada's 13 Hottest Real Estate Markets</a>Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowMillennials Want to Be Homeowners
PHOTO 1 of 18READ LESS -The desire to own your home spans generations, but the reality of home ownership is unattainable for the majority of young people. As outlined in a recent <a href="https://www.osc.gov.on.ca/documents/en/Investors/inv_research_20171127_missing-out-report.PDF" rel="nofollow" target="_blank">report on Millennials and the Markets</a> by the Ontario Securities Commission (OSC), only 33% of millennials are homeowners — though 56% of millennials who don’t own their homes felt that home ownership is a top financial priority. <br><br>Related: <a href="https://www.hgtv.ca/real-estate/photos/income-required-to-own-a-home-in-canadas-hottest-real-estate-markets-1927951/" rel="noopener" target="_blank">This is the Income Required to Own a Home in Canada's 13 Hottest Real Estate Markets</a>Photo Credit: Getty Images
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Parents Want to Help
2/18Parents Want to Help
2/18Photo Credit: Getty Images
It’s natural for parents to want to help their children, even once they’ve grown up. With factors like soaring <a href="https://www.hgtv.ca/real-estate/" rel="noopener" target="_blank">real estate</a> prices, stricter mortgage rules and a higher cost of living, it's harder for young people to buy a home on their own. So, many parents are looking for ways they can help their kids to get into the housing market. <br><br>Related: <a href="https://www.hgtv.ca/real-estate/photos/the-most-common-deal-breakers-for-home-buyers-revealed-1908149/" rel="noopener" target="_blank">The Most Common Deal Breakers for Homebuyers Revealed</a></a>Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowParents Want to Help
PHOTO 2 of 18READ LESS -It’s natural for parents to want to help their children, even once they’ve grown up. With factors like soaring <a href="https://www.hgtv.ca/real-estate/" rel="noopener" target="_blank">real estate</a> prices, stricter mortgage rules and a higher cost of living, it's harder for young people to buy a home on their own. So, many parents are looking for ways they can help their kids to get into the housing market. <br><br>Related: <a href="https://www.hgtv.ca/real-estate/photos/the-most-common-deal-breakers-for-home-buyers-revealed-1908149/" rel="noopener" target="_blank">The Most Common Deal Breakers for Homebuyers Revealed</a></a>Photo Credit: Getty Images
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Down Payment Disappointments
3/18Down Payment Disappointments
3/18Photo Credit: The Gender Spectrum Collection Source: broadlygenderphotos.vice.com
One of the first places parents can consider when wanting to help kids enter the <a href="https://www.hgtv.ca/real-estate/photos/expectation-vs-reality-how-to-translate-popular-real-estate-listing-euphemisms-1929915/" rel="noopener" target="_blank">real estate</a> market is with a down payment. While many non-homeowners are used to and capable of making monthly payments in the form of rent, one of the biggest obstacles for cash-strapped young people is finding the extra savings to come up with a large down payment. <br><br>Related: <a href="https://www.hgtv.ca/real-estate/photos/dos-and-donts-of-buying-property-with-friends-1928069/" rel="noopener" target="_blank">The Do's and Don'ts of Buying Property With Friends</a>Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowDown Payment Disappointments
PHOTO 3 of 18READ LESS -One of the first places parents can consider when wanting to help kids enter the <a href="https://www.hgtv.ca/real-estate/photos/expectation-vs-reality-how-to-translate-popular-real-estate-listing-euphemisms-1929915/" rel="noopener" target="_blank">real estate</a> market is with a down payment. While many non-homeowners are used to and capable of making monthly payments in the form of rent, one of the biggest obstacles for cash-strapped young people is finding the extra savings to come up with a large down payment. <br><br>Related: <a href="https://www.hgtv.ca/real-estate/photos/dos-and-donts-of-buying-property-with-friends-1928069/" rel="noopener" target="_blank">The Do's and Don'ts of Buying Property With Friends</a>Photo Credit: The Gender Spectrum Collection Source: broadlygenderphotos.vice.com
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How Parents Can Ease the Burden
4/18How Parents Can Ease the Burden
4/18Photo Credit: Getty Images
As such, providing a down payment is an effective way for parents to help lift kids onto the property ladder. Though this is a huge financial decision, going with a lump-sum financial gift or a loan offer parents some flexibility — while still helping out. <br><br>Related: <a href="https://www.hgtv.ca/real-estate/photos/houses-for-sale-300000-or-less-canada-1925680/" rel="noopener" target="_blank">These Are the Houses You Can Get on a $300K Budget Across Canada</a>Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowHow Parents Can Ease the Burden
PHOTO 4 of 18READ LESS -As such, providing a down payment is an effective way for parents to help lift kids onto the property ladder. Though this is a huge financial decision, going with a lump-sum financial gift or a loan offer parents some flexibility — while still helping out. <br><br>Related: <a href="https://www.hgtv.ca/real-estate/photos/houses-for-sale-300000-or-less-canada-1925680/" rel="noopener" target="_blank">These Are the Houses You Can Get on a $300K Budget Across Canada</a>Photo Credit: Getty Images
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It’s More Common Than You May Think
5/18It’s More Common Than You May Think
5/18Photo Credit: Getty Images
Helping adult kids with a down payment happens more than you may realize, with a <a href="http://genworth.ca/en/first-time-homeownership-study.aspx" rel="noopener noreferrer" target="_blank">2019 First-Time Homeownership Study</a> noting that 37% of homebuyers received financial gifts and loans from family members. This is a big jump in just a few years — up 6% from 31% in 2015. <br><br> Related: <a href="https://www.hgtv.ca/real-estate/photos/become-a-homeowner-under-35-1926489/" rel="noopener noreferrer" target="_blank">How to Become a Homeowner if You’re Under 35</a>Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowIt’s More Common Than You May Think
PHOTO 5 of 18READ LESS -Helping adult kids with a down payment happens more than you may realize, with a <a href="http://genworth.ca/en/first-time-homeownership-study.aspx" rel="noopener noreferrer" target="_blank">2019 First-Time Homeownership Study</a> noting that 37% of homebuyers received financial gifts and loans from family members. This is a big jump in just a few years — up 6% from 31% in 2015. <br><br> Related: <a href="https://www.hgtv.ca/real-estate/photos/become-a-homeowner-under-35-1926489/" rel="noopener noreferrer" target="_blank">How to Become a Homeowner if You’re Under 35</a>Photo Credit: Getty Images
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Sometimes, It’s the Only Way
6/18Sometimes, It’s the Only Way
6/18Photo Credit: PexelsSource: www.pexels.com
More than just helpful, it seems that parental contributions are the determining factor for many first-time homebuyers ability to purchase. The First-Time Homeownership Study showed that half of the people who received a gift or loan would have delayed purchasing a home without it. <br><br>Related: <a href="https://www.hgtv.ca/real-estate/photos/reddit-user-reveals-the-truth-about-buying-your-first-house-in-viral-post-1053141/" rel="noopener noreferrer" target="_blank">Reddit User Reveals the Truth About Buying Your First House in Viral Post</a>Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowSometimes, It’s the Only Way
PHOTO 6 of 18READ LESS -More than just helpful, it seems that parental contributions are the determining factor for many first-time homebuyers ability to purchase. The First-Time Homeownership Study showed that half of the people who received a gift or loan would have delayed purchasing a home without it. <br><br>Related: <a href="https://www.hgtv.ca/real-estate/photos/reddit-user-reveals-the-truth-about-buying-your-first-house-in-viral-post-1053141/" rel="noopener noreferrer" target="_blank">Reddit User Reveals the Truth About Buying Your First House in Viral Post</a>Photo Credit: PexelsSource: www.pexels.com
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Can You Afford It?
7/18Can You Afford It?
7/18Photo Credit: Pexels Source: www.pexels.com
With that said, while it’s many parents’ instinct to want to help their child realize their dreams, it’s imperative that you’re absolutely sure that you can afford to help before you offer.Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowCan You Afford It?
PHOTO 7 of 18READ LESS -With that said, while it’s many parents’ instinct to want to help their child realize their dreams, it’s imperative that you’re absolutely sure that you can afford to help before you offer.Photo Credit: Pexels Source: www.pexels.com
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Put Your Own Financial Future First
8/18Put Your Own Financial Future First
8/18Photo Credit: Getty Images
Think of the classic airplane analogy: in the event of an emergency, you need to put your own oxygen mask on before you can help the person beside you. In the same way, be sure that your own financial situation is sound — considering the implications of factors like retirement in your future — before you try to assist the next generation.Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowPut Your Own Financial Future First
PHOTO 8 of 18READ LESS -Think of the classic airplane analogy: in the event of an emergency, you need to put your own oxygen mask on before you can help the person beside you. In the same way, be sure that your own financial situation is sound — considering the implications of factors like retirement in your future — before you try to assist the next generation.Photo Credit: Getty Images
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Avoid Refinancing
9/18Avoid Refinancing
9/18Photo Credit: Pexels/rawpixel.comSource: www.pexels.com
Sometimes, parents look to their equity as a way to help children buy homes, but this can be very risky. By refinancing your home to get money to give your children, you put your own financial future in jeopardy if the market adjusts and the value of your home goes down.Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowAvoid Refinancing
PHOTO 9 of 18READ LESS -Sometimes, parents look to their equity as a way to help children buy homes, but this can be very risky. By refinancing your home to get money to give your children, you put your own financial future in jeopardy if the market adjusts and the value of your home goes down.Photo Credit: Pexels/rawpixel.comSource: www.pexels.com
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Gifts or Loans?
10/18Gifts or Loans?
10/18Photo Credit: Unsplash/Joanna KosinskaSource: unsplash.com
If you’ve assessed your situation and you are able to help fund your child’s home purchase, you need to then decide if your contribution will be an outright gift or a loan. <br><br>Related: <a href="https://www.hgtv.ca/real-estate/photos/buying-for-sale-by-owner-properties-1929224/" rel="noopener" target="_blank">What to Look for When Buying 'For Sale by Owner' Properties</a>Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowGifts or Loans?
PHOTO 10 of 18READ LESS -If you’ve assessed your situation and you are able to help fund your child’s home purchase, you need to then decide if your contribution will be an outright gift or a loan. <br><br>Related: <a href="https://www.hgtv.ca/real-estate/photos/buying-for-sale-by-owner-properties-1929224/" rel="noopener" target="_blank">What to Look for When Buying 'For Sale by Owner' Properties</a>Photo Credit: Unsplash/Joanna KosinskaSource: unsplash.com
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Gifting a Down Payment
11/18Gifting a Down Payment
11/18Photo Credit: Getty Images
While you’ve been giving your children gifts for birthdays, graduations and holidays for years, the rules around gifting a down payment are a little more complex. Check with the mortgage lender for specifics, but in general, a gifted down payment must come from an immediate relative and it must be a genuine gift — that is, you may have to sign a declaration confirming that the funds are a true gift and that they will never have to be repaid.Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowGifting a Down Payment
PHOTO 11 of 18READ LESS -While you’ve been giving your children gifts for birthdays, graduations and holidays for years, the rules around gifting a down payment are a little more complex. Check with the mortgage lender for specifics, but in general, a gifted down payment must come from an immediate relative and it must be a genuine gift — that is, you may have to sign a declaration confirming that the funds are a true gift and that they will never have to be repaid.Photo Credit: Getty Images
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A Living Inheritance?
12/18A Living Inheritance?
12/18Photo Credit: Getty Images
One way to think about giving the gift of a down payment to your child is to consider it a “living inheritance” — or money passed down to a child or grandchild now, rather than as part of a will. If you can afford it, a living inheritance offers a few benefits: children can use the money they would have received in a will now, making <a href="https://www.hgtv.ca/real-estate/blog/scott-mcgillivray-home-buying-myths-1924612/" rel="noopener" target="_blank">homebuying</a> accessible while they’re young. Also, because there are no taxes on gifts in Canada, even a large gift of a down payment won’t be taxed as income.Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowA Living Inheritance?
PHOTO 12 of 18READ LESS -One way to think about giving the gift of a down payment to your child is to consider it a “living inheritance” — or money passed down to a child or grandchild now, rather than as part of a will. If you can afford it, a living inheritance offers a few benefits: children can use the money they would have received in a will now, making <a href="https://www.hgtv.ca/real-estate/blog/scott-mcgillivray-home-buying-myths-1924612/" rel="noopener" target="_blank">homebuying</a> accessible while they’re young. Also, because there are no taxes on gifts in Canada, even a large gift of a down payment won’t be taxed as income.Photo Credit: Getty Images
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Loaning a Down Payment
13/18Loaning a Down Payment
13/18Photo Credit: Getty Images
If an outright gift isn’t in the cards for you, a financial loan may be a good option. By loaning children money to go towards home ownership, the expectation is that you’ll be repaid in the future — which can ease the impact your own financial future and retirement. You can choose to loan the money at a lower interest rate than the mortgage rate (helping your kids save money). Still, with a loan there are also many factors to consider.Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowLoaning a Down Payment
PHOTO 13 of 18READ LESS -If an outright gift isn’t in the cards for you, a financial loan may be a good option. By loaning children money to go towards home ownership, the expectation is that you’ll be repaid in the future — which can ease the impact your own financial future and retirement. You can choose to loan the money at a lower interest rate than the mortgage rate (helping your kids save money). Still, with a loan there are also many factors to consider.Photo Credit: Getty Images
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Set Clear Expectations
14/18Set Clear Expectations
14/18Photo Credit: Getty Images
You aren’t a bank, but you are dealing with money when it comes to loaning your kids cash for a down payment. So, it's important to set clear terms. Think about, discuss and mutually agree on the expectations for the loan — like how much money is needed, what the interest rate will be and when and how repayment will take place. You must also look into the implications of loaning money on your <a href="https://www.hgtv.ca/scott-mcgillivray/blog/5-steps-to-safeguarding-your-finances-when-buying-an-investment-property-1914583/" rel="noopener" target="_blank">finances</a>. For example, you are responsible for declaring interest earned on a loan on your tax return. Also, for your child, a loan from you is not considered their own down payment, so they may have to pay a surcharge from the <a href="https://www.cmhc-schl.gc.ca/" rel="nofollow" target="_blank">Canada Mortgage and Housing Corporation</a>.Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowSet Clear Expectations
PHOTO 14 of 18READ LESS -You aren’t a bank, but you are dealing with money when it comes to loaning your kids cash for a down payment. So, it's important to set clear terms. Think about, discuss and mutually agree on the expectations for the loan — like how much money is needed, what the interest rate will be and when and how repayment will take place. You must also look into the implications of loaning money on your <a href="https://www.hgtv.ca/scott-mcgillivray/blog/5-steps-to-safeguarding-your-finances-when-buying-an-investment-property-1914583/" rel="noopener" target="_blank">finances</a>. For example, you are responsible for declaring interest earned on a loan on your tax return. Also, for your child, a loan from you is not considered their own down payment, so they may have to pay a surcharge from the <a href="https://www.cmhc-schl.gc.ca/" rel="nofollow" target="_blank">Canada Mortgage and Housing Corporation</a>.Photo Credit: Getty Images
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What About Being a Guarantor?
15/18What About Being a Guarantor?
15/18Photo Credit: Pexels/rawpixel.comSource: www.pexels.com
If a gift or loan doesn’t make sense for your financial situation, another way that parents can help children enter the housing market is by signing as a guarantor on the mortgage. If all goes well, this is an easy way to use your own good credit and standing to assist your kids — however, there are still risks to consider.Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowWhat About Being a Guarantor?
PHOTO 15 of 18READ LESS -If a gift or loan doesn’t make sense for your financial situation, another way that parents can help children enter the housing market is by signing as a guarantor on the mortgage. If all goes well, this is an easy way to use your own good credit and standing to assist your kids — however, there are still risks to consider.Photo Credit: Pexels/rawpixel.comSource: www.pexels.com
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Hard Talks and a Lot of Trust
16/18Hard Talks and a Lot of Trust
16/18Photo Credit: Unsplash/Farrel NobelSource: unsplash.com
Before signing as a guarantor, you need to have some in-depth conversations with your child — discussing their financial situation, budget and plan and ability to deal with unforeseen expenses. While these conversations can be uncomfortable, they’re necessary, as being a guarantor requires a great degree of trust.Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowHard Talks and a Lot of Trust
PHOTO 16 of 18READ LESS -Before signing as a guarantor, you need to have some in-depth conversations with your child — discussing their financial situation, budget and plan and ability to deal with unforeseen expenses. While these conversations can be uncomfortable, they’re necessary, as being a guarantor requires a great degree of trust.Photo Credit: Unsplash/Farrel NobelSource: unsplash.com
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Can They Keep Up Their End of the Bargain?
17/18Can They Keep Up Their End of the Bargain?
17/18Photo Credit: Getty Images
No matter what strategy you choose to help your children buy property, these in-depth conversations are necessary if you’re going to be a part of the <a href="https://www.hgtv.ca/scott-mcgillivray/photos/worst-homebuying-advice-scott-mcgillivray-has-ever-heard-1927422/" rel="noopener" target="_blank">homebuying</a> process. By communicating well, both you and your children can enter the situation with clear eyes. These conversations also make it easier to better assess if your child will be able to hold up their end of the bargain and not take your help for granted.Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowCan They Keep Up Their End of the Bargain?
PHOTO 17 of 18READ LESS -No matter what strategy you choose to help your children buy property, these in-depth conversations are necessary if you’re going to be a part of the <a href="https://www.hgtv.ca/scott-mcgillivray/photos/worst-homebuying-advice-scott-mcgillivray-has-ever-heard-1927422/" rel="noopener" target="_blank">homebuying</a> process. By communicating well, both you and your children can enter the situation with clear eyes. These conversations also make it easier to better assess if your child will be able to hold up their end of the bargain and not take your help for granted.Photo Credit: Getty Images
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How Involved Will You Be?
18/18How Involved Will You Be?
18/18Photo Credit: Getty Images
Whether you’re giving a gift or a loan, you should also consider how much involvement you can expect to have in the homebuying experience. Are you giving them money and letting your child choose freely how they want to spend it or do you want to have input in the investment? Do you expect to go to open houses? Buying a home a high-stress situation on its own — by discussing these things early on in the process, you can avoid potential parent-child conflict later. <br><br> Related: <a href="https://www.hgtv.ca/real-estate/photos/tips-reducing-house-hunting-anxiety-1930256/" rel="noopener" target="_blank">Tips for Reducing House-Hunting Anxiety</a>Real EstateConsidering Helping Your Kids Buy Property? Here’s What You Need to KnowHow Involved Will You Be?
PHOTO 18 of 18READ LESS -Whether you’re giving a gift or a loan, you should also consider how much involvement you can expect to have in the homebuying experience. Are you giving them money and letting your child choose freely how they want to spend it or do you want to have input in the investment? Do you expect to go to open houses? Buying a home a high-stress situation on its own — by discussing these things early on in the process, you can avoid potential parent-child conflict later. <br><br> Related: <a href="https://www.hgtv.ca/real-estate/photos/tips-reducing-house-hunting-anxiety-1930256/" rel="noopener" target="_blank">Tips for Reducing House-Hunting Anxiety</a>Photo Credit: Getty Images
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