Thinking Of Helping Your Child Buy A First Home? Here’s How You Can Do It.

Remember the good old days? You began your early independent life with a nice starter home in the suburbs with a small lawn to cut in the summer and a driveway to shovel in the winter. A few years later you bought a bigger home, moving up in life and work….Not anymore.

Today the average price of a home in Vancouver is well over a million dollars, and with the new mortgage rules, first time homebuyers are hard pressed to ever own a home, unless they get some sort of relief from family or win the lottery.

You may be a parent of a millennial with the heart (and wallet) to help your child get into the property ladder. Here are ways to do it:

1. Make a lump sum payment as a gift.

Pros:

• No tax implications if you are gifting to your child using after tax dollars.
• Simple and straightforward to do.

Cons:

• The gift comes with no conditions attached.
• You cannot demand retroactive payments or conditions.
• You may lose your gift if creditors have a claim on your child’s assets or your child’s marriage breaks up.

2. Become a co-signer or guarantor to a mortgage. This is useful if your child has a poor credit history or doesn’t have enough to cover the monthly payments.

Pros:

• You don’t have to put out your own money.
• You give your child the opportunity to own a mortgage with your help, which will help his/her credit rating in the long run.

Cons:

• If your child cannot make the payments, you are on the hook for the payments.
• The lender can take action against both you and your child.
• If you are the guarantor, the lender will first go after your child, and then after you. This will affect your credit worthiness, which is not a good thing if you have painstakingly maintained an excellent record over the years.

3. Consider giving your child a secured loan.

Pros:

• The loan can be documented and secured to give you the parent, the legal right to enforce payback conditions.
• If the conditions are not met, you can take the matter before the courts, and eventually take control of the property.
• If your child’s marriage breaks up, a secure loan will ensure that your contribution is not lost.
• If you have prior claim on the property through the secured loan, other creditors may not be able to make a claim on the property.

Cons:

• Drawing up the loan documents that will stand up in a court of law will require the use of a lawyer, which represents an expense.
• If the loan is drawn up informally over the dining table, it may not stand up in court.
• Not many parents may actually take their children to court if they default on the loan.

4. Set up a trust that stipulates that the child can only use the property in accordance with the terms set out in the trust.

Pros:

• The child can enjoy the home without the need for a mortgage.
• The home is secured from a child’s creditors and the fallout of a broken marriage.

Cons:

• As a parent, you still have to fork out for your child’s accommodation
• Your child will not build up a credit history.
• The legal fees for setting up the trust can be expensive.

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