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 home ownership themselves, and see how hard it is today to make that important first step into the real estate market. So should you give them a boost?
First, 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. If you loan the money and it is never repaid, will it affect your own financial security? Can you afford to gift the money, and if so, how much?
Take some time to think about family dynamics. Are there siblings or other family members to consider? Will there be an issue of fairness that you need to manage? Some families work well with a structured loan arrangement with a modest interest rate that gives the young family member an opportunity to buy the home – but also sets out the expectations for loan repayment. It can foster good borrowing habits and minimize family friction later.
Home ownership 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 home ownership, consider whether they’re ready for the financial responsibility. Sometimes, the best advice is to keep renting for a while and take more time to get ready for the responsibility of a large mortgage.
If your child is married or living with a partner, consider property law. Experts advise parents to structure a loan to a child if there is a spouse or partner to consider. Should a marriage break up, for example, you may discover that 50 per cent of the money went free and clear to your child’s partner as part of a settlement of family property. A fairly simple fix is to structure a loan – even with 0% interest or with no regular payments – but with the ability to call the loan at any time. In that way, the loan would be subtracted from the family property before being divided.
Always put it in writing. If it’s a loan, you’ll want a written record of your shared expectations. If it’s a gift, you must put it in writing for the lender that the child is not required to pay the money back at any time.
Talk to 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 sound, expert advice. Start them on a good financial habit and send them to us for access to the most mortgage options and clear-eyed, common sense advice.