3 Ways to Help Your Kids Buy Their First Home

Lending a helping hand — and some cash

There are many reasons parents help adult children buy a first home. For some parents, it makes sense to buy a home for their children to use while they’re away at university or college; for others, to help their child start their adult life on a solid footing.

Here are three options to consider before moving forward.

1. Loan your child the money

You can offer your child an interest rate lower than the existing mortgage rate or, give them an additional break by offering the same interest you would get if you left the money in your bank account.

Things to consider:
• You have to declare any interest earned on your tax return
• For the Canada Mortgage and Housing Corporation (CMHC), a loan from you is not your child’s own down payment. This means your child will have to pay a surcharge for CMHC mortgage insurance

2. Co-sign a loan by adding your name to your child’s mortgage

This can seem like an easy way to help out – and it could be, if everything goes as planned. But you may be better off finding another way to help.
Things to consider:
•    It shows the bank that your child’s income or credit rating is not good enough alone
•    If you already have a mortgage, you and your child would not qualify for a high-ratio mortgage. Together, you would have to pay 20 per cent down. On his or her own, your child could pay as little as 5 per cent down.
•    You will be liable for the mortgage payments if your child defaults.
•    Your name will be on the title of the property. That means if something goes wrong, you are legally responsible. Check with a lawyer about the implications.

3. Gift some or all of the costs like the down payment or the monthly mortgage costs

Some parents give their children enough money to buy the home outright. You can gift any amount of money to your child. In Canada, there is no tax on cash gifts.

Things to consider:
• If it’s a gift you plan to leave your children in your will anyway, you will save them from paying probate fees after your death.
• It’s one thing to give cash as a gift. But if you buy a home and then give it to your child as a gift, it’s as though you sold the property to them at fair market value. So if the house is worth more than you paid for it at this time, you will have to pay tax on any capital gain.
• Think carefully about gifting money to a child to buy a home when they are getting married. If the marriage ends, the two parties would split any equity in the home. It doesn’t matter that you gave it as a gift to your child.

Remember: There are many ways to help your child buy a home. But first ask yourself if you can truly afford to do it, and make sure you’re on track with saving for your retirement.

Check out this useful buy or rent calculator and learn more about buying a home and saving for your retirement.

The Investor Education Fund offers unbiased financial information to the general public via GetSmarterAboutMoney.ca. The not-for-profit organization was established by the Ontario Securities Commission (OSC), and is funded through OSC enforcement settlements.