Toronto real estate ranks among the most expensive in all of North America. Long-escalating prices paired with other economic factors such as inflation and fluctuations in interest rates have created new obstacles for many young adults who are looking to buy their first home.
In light of these challenges, an increasing number of young buyers are receiving some form of help from their parents in order to reach their real estate goals. However, for parents who wish to assist their children in purchasing a home, understanding the financial and legal implications of your support is essential.
In this blog, we will touch on various strategies that parents can employ in order to assist their children in buying a Toronto home.
Wish to help your child purchase their first home? Our strategic buying services can ensure they make a strong investment. Reach out to get started. Call 416.441.2888 or email us at evan@christensengroup.ca.
Gifting a Downpayment
Arguably the most substantial financial hurdle facing first-time home buyers is the downpayment. In Toronto, the city’s notably high costs of real estate, paired with a minimum downpayment amount of 20% mean that a substantial amount of upfront capital is often required to afford a home. This can create a significant barrier to entry for many younger people.
As a result, one of the most common ways that parents elect to assist their children is by gifting a downpayment – allowing younger buyers to obtain a property with greater ease and efficiency.
However, it’s crucial to ensure that donating a large amount of money to your child won’t induce personal financial strain or negatively impact your long-term plans. Be sure to speak with your financial advisor before offering a substantial monetary gift.
Approaching a Toronto home purchase? Navigate to these related readings for further insights.
- Can I Buy a Toronto Home If I Have Bad Credit?
- The Strategic Value of a Starter Home
- A Guide to Canada’s First Home Savings Account
Offering a Personal Loan
Gifting a lump sum outright may not be a preferred solution for all parents. To that end, providing a private home loan to your child can be a viable alternative. This approach allows you as a parent to maintain some financial security while still providing the necessary assistance.
Like gifting, offering your child a loan is not without its special considerations and it is essential to protect your interests should you go this route. Working with your lawyer, formalize the loan with a legal agreement that outlines the terms, interest (if relevant) and repayment expectations. While it may seem cumbersome or awkward, taking this step protects both parties and ensures clarity in the arrangement.
Co-signing Their Mortgage
In some cases, your child may not qualify for a loan on their own. As a parent, you may consider co-signing the mortgage, which can improve the terms and amount that they qualify for.
While helpful, this route does come with a fair degree of risk. Before signing, consider that you and your child will be equally liable for repayment. With that in mind, if your child defaults on their mortgage, the lender may pursue you in search of repayment. To that end, co-signing your child’s mortgage can also negatively affect your credit score.
You should additionally consider the length of your commitment. Co-signing a mortgage agreement is usually a major, long-term commitment – one that remains in place until the mortgage is fully paid off or refinanced. While you’re likely considering your child’s needs first, don’t neglect your own degree of comfort.
Seeking insights on home financing in Toronto? Consider these related resources from our blog.
- How to Find the Right Mortgage Lender
- The Mortgage Stress Test Explained
- What Not to Do Once You Have a Mortgage Pre-Approval
Co-ownership & Joint Purchasing
Rather than merely co-signing the mortgage, some parents assist their children by jointly purchasing a home with them. This path benefits both you and your child as any gained equity is shared between parties based on your individual financial contributions. This can be beneficial as the home’s value will likely appreciate.
There are various ways for joint ownership to be structured such as tenants-in-common or joint tenants with rights of survivorship. That said, both parties should be aware of the legal implications involved in joint ownership before signing on the dotted line.
Looking to buy your first home? Our strategic buying services can help you optimize your purchase in any market. Call us at 416.441.2888 or reach us by email at info@christensengroup.ca.
