Everything about homeownership is so different these days compared to when boomers bought their first home. Today, of course, young people in Brampton, Toronto, and the GTA struggle to purchase their first home given the financial demands of school loans, living expenses, and establishing a career.
Parents and grandparents are sympathetic, and many want to help with the road to homeownership. They’ve enjoyed the financial benefits of long-term home appreciation and see how hard it is today to make that important first step into the real estate market. And when you add in the run-up in home prices over the last year and a half in Brampton, Toronto, and the GTA, it’s not a surprise that homebuying assistance using these two strategies has become more important than ever –
- Giving downpayment funds as a gift – you sign a gift letter for the lender that says the funds are a gift and are not required to pay the money back at any time. While this strategy is typically used to help children buy a home with the minimum 5 percent down, it is also used to help children reach 20% down in which case they do not have to pay mortgage insurance, which significantly lowers their total mortgage amount.
- Co-signing the mortgage with your child – you essentially add your financial weight to your child’s mortgage application, which allows your child to qualify for a mortgage that they otherwise cannot obtain. Since you assume a shared legal responsibility, you are agreeing to repay the mortgage if your child is unable to do so.
Be sure to put some careful thought into this before you help. Here are some important considerations:
Your financial situation. Your first responsibility is to your own financial security, so you need to consider what kind of help you can afford. Can you afford to gift the money, and if so, how much? Will you be okay to assume responsibility of the mortgage payments if you co-sign and your child defaults? Co-signing could also limit your ability to borrow and potentially affect your credit score.
Family harmony. Are there siblings or other family members to consider? Will there be an issue of fairness that you need to manage?
Buying a home is a big financial responsibility. You know there are more costs to homeownership than just paying the monthly mortgage payment: like heat, hydro, water, insurance, taxes, and of course repairs and ongoing maintenance. Before you offer your child a helping hand with homeownership, consider whether they’re ready for this big financial commitment.
If your child is married or living with a partner, take property law into consideration. Should your child’s marriage break up, you may discover that 50 percent of the money goes free and clear to your child’s partner as part of a settlement of family property. If this is a concern, be sure to get in touch with a lawyer to discuss what protections you may be able to put in place before funding. If you’d like a referral to a lawyer in Brampton, Toronto or the GTA, please let me know.
Get in touch with me! Your child is preparing to embark on an important financial journey, and you want to do your best to help get them on the right path. The best place to begin is with the sound, expert advice that I love to give to first-time buyers throughout Brampton, Toronto and the GTA. Be sure to have them contact me for access to the best mortgage options and advice that will set them up for the long term. And of course, the earlier the better! I’m here to help!
