Being a parent never ends. There’s nothing more satisfying for most parents than helping their children succeed, helping them to be comfortable and helping them out financially at times. One of the most invaluable things parents can do for their adult children is to help them buy their first homes. In Canada, there are ways of doing that without compromising their own financial security.
Freeing up Capital
If your adult children have left the nest, you may have more room than you need in your current home. Downsizing might be one way to free up some capital you could use to help your child with the down payment on a home of their own.
Experts say as long as parents have considered their own financial futures and having enough on hand for retirement and possible long-term care, helping their children who are prepared for homeownership is doable and helpful—especially since saving for a down payment could take years.
Gift or Loan?
The easiest way to help is to give your child a monetary gift, but it might not be the best thing to do. Another way would be to set up the “gift” as a loan which could be forgiven in the future. A lot depends upon the circumstances. If your child has a partner from whom they divorce or separate, a monetary gift may be in danger of being considered a shared asset in Canada.
A parent can forgive that loan as part of their estate planning process. This ensures that if your child does split from a partner, the loan will be considered a sharable debt if the money was indeed used as a down payment. Speaking to a lawyer prior to giving those funds to your child is advisable
Becoming a Loan Guarantor or a Co-Owner
You might also choose to become a guarantor for a mortgage taken out by your child. That way, they may be able to get a better interest rate since it reduces the risk faced by a lender.
Another possibility? Buying the home yourself and renting it to your child, whose home it would ultimately become. Or you could purchase the home with your child and become a co-owner. Perhaps a duplex is in the cards and you can live in one unit and your child in the other.
Whatever your decision, it’s important to get solid financial advice before moving forward with any scenario. A REALTOR® may be especially helpful in helping you make a logical decision in what is usually an emotional experience for parents looking to help out their adult children in buying a home.
