Price gains in BC real estate markets like the lower mainland, have made it increasingly difficult for first-time homebuyers to get into the housing market without financial support from their parents. In 2018, 83% of BC Notaries said their first-time home buyer clients were getting help from the Bank of Mom and Dad.
Here are five ways you can help your kids purchase a home and begin building equity for themselves:
1. Provide a Cash Gift (Gifted Down Payment)
- 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 maximum purchase price which in return will increase their options.
- Cons: If you have to liquidate investments to raise the money there may be tax implications on any capital gains.
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 how the property is set up as a mortgage .
- Cons: If the loan goes unpaid or the agreed upon terms are not adhered to, there could be tension and resentment.
3. Co-Sign for the Mortgage Loan
- Pros: Agreeing to co-sign for your child’s mortgage can strengthen their application and help them get approved.
- Cons: Being on title means you share financial and legal responsibility if anything goes wrong. Co-signing may limit your borrowing power in the future.
4. Co-Ownership
- Pros: Investment opportunity for both parties. Ability to choose a home that suits 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 as an Investment Property and Rent to Them
- Pros: Claim the 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.