As realtors, we get a lot of inquiries from parents looking to help their child buy a home, from parents looking to buy an investment property that their kids will live in, or from Buyers who have parents who are willing to help. The question is, when helping your kids buy a home, what’s the best way to help?
When and why you’re buying the property can make a big difference in which helpful route you take when helping your kids buy a home. At the end of the day, helping your child get on the property ladder early on can give them a leg up in gaining equity, which will help them move on to their next property. Ensure your child can afford the bills (mortgage, property tax, strata fees, insurance, etc) with a clear understanding of who pays for larger bills like special levies for building maintenance.
As always, talk to your mortgage broker, tax advisor and family lawyer for clarification on any of the details regarding the multitude of potential situations.
1. Buying the Property in Your Name
This is one route that parents take, albeit, not the most common. As the purchaser, you’ll have to arrange the mortgage (if needed), pay property transfer tax (since you likely own at least one other property) and capital gains tax when you sell. However, you’ll have complete control of the property’s ownership and can think about gifting/selling the property to your child in the future.
Keep in mind, if you’ll be renting the property out once your child moves on, you’ll need to ensure that the building allows rentals.
2. Gifting the Down Payment, or more
You are more than welcome to gift some funds to your children to help them buy a home, and if your child will be living in the unit and satisfies the Property Transfer Tax Exemption Rules () neither them or you will be subject to property transfer tax or capital gains tax.
A couple notes about gifting money:
If your child is married when you gift the money, and then divorces, the funds you gifted may be split between your child and their spouse. If you gift the money before your child gets married, your child might be able to keep the full amount. Talk to your lawyer about these different situations.
If you have to sell some of your own investments in order to gift the funds, you may be paying capital gains tax on the profit. Tax to your tax advisor about this situation.
If you’re gifting the money, and want to maintain some control over the property, you can go on title with a percentage of ownership. You will have to pay property transfer tax and capital gains tax on your portion of ownership. If the marriage breaks down, you would be entitled yo your portion of ownership upon a sale.
3. Loan the Down Payment, or more
Consider lending the money to your child, since like gifting, it carries no negative tax consequences. If you’re lending the money with expectations that your child will pay you back eventually, you may still have to draft a “gift” letter otherwise the mortgage lenders will look at the loan as another debt, which can hurt your child’s mortgage approval. You can still some up with a payment plan indicating how and when your child will pay you back.
If you arrange the loan as a mortgage, with terms and a payment plan that work for you and your child, you should be paid the outstanding loan if your child’s marriage breaks down.
If you’re interested in helping your child buy a home, contact us to get started! We have the tool sand knowledge to ensure you’re well prepared.