With the financial demands of school loans, living expenses, and finding a career path, many young people struggle to purchase their first home. Often, parents and grandparents are very sympathetic. They’ve enjoyed the financial benefits of long-term homeownership themselves 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 18 months, it’s not a surprise that home buying assistance using these two strategies is up dramatically:
GIFTED DOWNPAYMENT You sign a gift letter for the lender that says the funds are a gift and are not required to be paid back at any time.
CO-SIGNING THE MORTGAGE You assume a shared legal responsibility, agreeing to repay the mortgage if your child is unable to do so.
You do want to put some careful thought into this before you help. Here are some things you may want to consider:
Your own 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 the primary borrower defaults? Co-signing could also limit your ability to borrow and affect your credit score.
Family dynamics. Are there siblings or other family members to consider? Will there be an issue of fairness that you need to manage?
Homeownership is a big financial responsibility. You know there are more costs to homeownership than just paying the monthly mortgage payment, like heat, hydro, insurance, cable, taxes, and of course repairs and upkeep. Before you offer your child a boost to homeownership, consider whether they’re ready for the financial responsibility.
If your child is married or living with a partner, consider property law. 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 to you, be sure to get in touch with a lawyer to discuss what protections you may be able to put in place before funding.
Get in touch! 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 sound, expert advice. Start them on a good financial habit and have them get in touch for access to the most mortgage options and clear-eyed, common-sense advice. The earlier the better!
Written by Jean Lamarche, Mortgage Specialist – Invis Inc.
Mandeville Private Client Inc. is a Member of the Investment Industry Regulatory Organization of Canada and Member of the Canadian Investor Protection Fund.
Michael Prittie and Mandeville Private Client Inc. do not make any representation that the information in any linked site is accurate and will not accept any responsibility or liability for any inaccuracies in the information not maintained by them, such as linked sites. Any opinion or advice expressed in a linked site should not be construed as the opinion or advice of Michael Prittie or Mandeville Private Client Inc. The information in this communication is subject to change without notice.
Insurance products and services are offered by licensed representatives operating through Mandeville Insurance Services Inc. (a licensed life insurance agency and affiliate of HUB Financial).
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual funds, stocks, bonds, and financial planning are offered through Mandeville Private Client Inc.