Spring has sprung!
As usual, the weather in Vancouver is swinging back and forth, trying to decide if the city should be beautiful or rainy. Are you wrestling with a tough decision yourself? Thinking about helping your kid(s) buy a home? Let’s take a look at what you will need to know before you decide.
Helping the kid(s) out:
To buy or not to buy?
These days, with prices higher in some metropolitan areas, like Vancouver, parents are beginning to think about helping their child or children buy a home – from first apartment to a family house. But family and money can be a bit complicated, and no less so when real estate is involved. Here are some key points you should think about when determining whether you are helping your child(ren) out or hurting yourself.
- The Basics
Sometimes helping someone purchase a home of their own can be as easy as co-signing on a mortgage or lending some cash to help them meet the mortgage qualification requirements. If you do decide to gift cash, be aware that you will be required to write a “letter of gift” in order to protect both parties. This letter should state that you do not expect the money to be paid back, i.e. the money is not a loan. For amounts over $5000, check with your mortgage broker to see if there is further documentation required.
- The Protection
If your child is not married but is in a common-law relationship with someone, you may want to take an extra precautionary step to ensure the property always stays with your child. One way to do this is to register an “equitable charge.” This document will ensure that there can be no change in the title of the property without the parent’s agreement. You will need to check with your mortgage broker to see if you are eligible to register an equitable charge with your mortgage as certain banks and lenders are picky about this being done. Another option is to sign a pre-nuptial agreement to ensure the property isn’t included in the assets that can be divided between the couple, should a split occur.
- The Details
Tax implications do not apply to you if you give your child your after-tax dollars, whether your money goes towards helping with the down payment or paying for the home outright, as long as your child isn’t paying you back with interest (i.e. repaying a loan). What amount you should or should not give is completely up to you. Obviously, aiding your child with his/her down payment helps in the long run as monthly payments and overall incurred interest will be less over time. The difference between 10% and 20% is monumental when you look at the life of your child’s mortgage. Twenty percent also eliminates the need for mortgage insurance, which can save your child several thousand dollars in premiums, and allows your child to qualify for a greater amortization period, which can lower monthly premiums.
You may also purchase a home outright for your child by purchasing the property and then obtaining a mortgage on the property in order to protect your asset, if there is a common-law relationship. You will need to check with your mortgage broker as mortgage rules for this situation can become complicated.
Your other option is to co-invest in a home that you plan to live in with your child. Using a joint tenant agreement, the child (and partner, should they have one) would be able to slowly take over the title and/or would allow the property to remain probate free at the parent’s death. Ask your mortgage broker about structuring the mortgage so that your child can qualify for the property transfer tax exemption for first-time homebuyers, which will help both you and your child save money.
- The Cautions
Talk to a mortgage broker who has first-hand experience with a situation like yours. You may need to talk to a lawyer or accountant to ensure you are meeting all legal requirements, protecting yourself and your child from tax implications and liability. Be aware that you are able to remortgage your home to aid your child to purchase their own home, but this is should be approached with caution as it will leave you with a large debt closer to retirement.
Remember: Each situation is unique! Be sure to get all facts you need to make an informed decision that will leave both you and your child happy.
Original article from The Vancouver Sun.
April is about renewal…
This year, April is about renewal for me. I am excited to be travelling to Mexico with Shannon, our Rookie of the Year for Mortgage Alliance. Then, it is off to Barbados with Dan who won The Hilt trip. I have also signed up to complete a passion test with Intentional Success. I can’t wait to learn more about myself and have some time away to think on my findings!
Business of the Month…
This month’s featured business is led by Len Atwood of Notary Matters, because having a notary matters! April is “Will Month” – a chance to become more informed about what wills are and how they can protect you and your children. With over 20 years of business consulting experience, Len has acquired the ability to focus in on his client’s needs, and to then match the most pertinent solutions to each client on an individual basis.
Located in Yaletown, Notary Matters is conveniently located and is able to service Vancouver’s central core. As legal facilitators, notaries are able to ensure your legal documents are prepared and registered properly, giving you peace of mind. Don’t put off creating a will for another year – contact Notary Matters today because notaries (and wills!) matter.
Unique Mortgage Solutions for Each Situation!
If you or someone you know is considering purchasing or helping to purchase a home for their children, ensure you talk to a trusted mortgage broker professional. Each situation is unique – and there is a unique mortgage solution for each situation!