4 tips for helping your kids buy a home

(NC) With housing affordability shifting dramatically for a generation of Canadians, many hopeful homebuyers are turning to the “Bank of Mom and Dad” to help them secure their first home.

While it’s natural for some parents to want to help their kids get a leg up in the real estate market, helping out with a deposit or down payment can represent a significant chunk of money out-of-pocket for parents.

If you are in a position to try and help your kids buy a home, whether that’s with a loan or a gift of money, it’s important to have a plan in place that’s clearly communicated to your children.

Here’s some advice on how to do just that:

Understand your own financial goals and needs
No matter how much you want to help your kids, you’ll first want to make sure you aren’t jeopardizing your own retirement or quality of life to do so.

Your income, when you plan to retire, how you want to spend your retirement, and whether you plan to make big purchases down the road, are all factors to consider.

If you plan on giving your kids money and need to sell investments or assets to make it happen, you’ll also need to consider the timing and tax implications.

When to consider a gifted down payment
A “gifted down payment” is where the parent gifts their child a certain amount of money which is designated to go specifically to the down payment on a mortgage.

Typically, the person giving the gift must sign a letter stating explicitly that the money is a gift, not a loan, and that the money does not need to be repaid. The letter also includes details such as the date of the gift, the amount of money gifted and the relationship of the gift-giver to the recipient.

It’s important to note that a gifted down payment is considered non-repayable. For example, if you give your child and their spouse a gifted down payment, and your child later gets divorced and sells their home, the equity in the home would be split equally with their ex-spouse.

If parents are looking to lend their children money toward a down-payment (that is, they would like it paid back), you could consider lending the money as a private loan or private mortgage, where a written agreement is drawn up by a lawyer.

Check in regularly with your financial goals
Speaking with someone from your financial institution, like a TD personal banker, and regularly updating your financial goals can help you look at the bigger picture and make a plan so that you’re not losing sleep about your own future because you’ve helped your kids. These kinds of conversations are especially important as your financial needs change over time.