Housing prices in the lower mainland, along with strict mortgage guidelines, have made purchasing a home difficult for first time buyers without some assistance. For most, this assistance comes from the bank of Mom and Dad. If you are considering helping your children purchase, here's 5 ways you can help them step out of rental properties and into owning a home.
1) Make a Cash Gift
Cons: if you co-sign and already have a mortgage, your child will be restricted to qualify for a conventional mortgage, requiring a minimum 20% down payment, being on-title means you share financial and legal responsibility if anything goes wrong, co-signing can limit your borrowing power in the future.
4) Co-Ownership
Before we get started, I want to say a big thanks to Lynn McLellan of the Dreyer Group for the inspiration and ideas for this blog post.
1) Make a Cash Gift
Pros: There is no tax consequence to the cash transfer itself, with 20% down-payment you’d help avoid mortgage insurance fees, extra funds for a down-payment will increase the purchase price which in return will increase their options
Cons: if you have to liquidate investments to raise the money you might incur taxable capital gains (or losses)
2) Loan the Money
2) Loan the Money
Pros: You set the loan's interest rate so you can both benefit: lower than what a traditional lender would demand, but higher than what your funds might otherwise earn in a savings account, you’ll have some control over the property if it is set up as a mortgage
Cons: If the loan goes unpaid or adhered to the terms agreed upon, this could create tension and resentment.
3) Co-Sign the Loan
3) Co-Sign the Loan
Pros: Agreeing to co-sign for your child's mortgage can strengthen their application and help them get approved.
Cons: if you co-sign and already have a mortgage, your child will be restricted to qualify for a conventional mortgage, requiring a minimum 20% down payment, being on-title means you share financial and legal responsibility if anything goes wrong, co-signing can limit your borrowing power in the future.
4) Co-Ownership
Pros: Investment opportunity for both parties, able to choose a home that fits both your needs.
Cons: Establishing responsibilities could be challenging whether financially or otherwise, especially if the other party does not agree or adhere. This type of investment could change your relationship and create tension if anything goes wrong.
5) Buy a Home to Rent to Them
5) Buy a Home to Rent to Them
Pros: claim your child's rental payments as income, this will allow you to deduct any borrowing charges and qualifying expenses of maintaining the home, investment opportunity.
Cons: there may be tax implications if you do eventually sell or gift the property.
