First Time Home Buyer in Vancouver- helping your children buy
With the high cost of buying real estate in the lower mainland of BC, many parents feel obliged to help their children buy their first home.
A question that we often get asked is “what is the best approach in helping our children buy their first home”.
Well for starters, the first questions you should really be asking yourself is “Should I help my kids buy their first home?”
There was an article in the Financial Post that goes back about a year, but is still relevant. The article looks at how you may answer this question for the needs of your specific situation. Click here to access the article
If you have reviewed your situation and have determined you are in a position to look at options in helping your children buy their first home, a good place to start would be to consider these options:
1. Should you provide a Gift for the down payment money: You will need to provide the lender a letter, which is called a gift-letter to confirm any amount of money that you are gifting. The letter, must be signed by the person who is receiving the gift (home buyer) and the part who is providing the gift (family member), and will confirm the funds are in fact a gift and are not to be repaid. The funds will be deposited from the family members’s bank account into the home buyers bank account and proof of that transfer must also accompany the gift letter in order to be allowed for use as a down payment. Take note of the legal position in the Financial Post article or talk with your legal counsel.
2. Should you Co-sign or guarantee the mortgage: This is where a family member adds their profile to the application for financing to support the buyer in securing a mortgage. Depending on where the applicants are falling short, whether there is a lack of income or weak credit to qualify, the family member may have to go on title to the property (co-signor) or they can be guarantor not on title. To learn more— click here or discuss with your lawyer. You can also give us a call, and we can explain in further detail and also provide you with a name of a lawyer if you require.
3. Should you Loan the money – Perhaps the simplest solution that for everyone is to loan the buyer the money to purchase the home. This is of course, assuming that you have enough money. There are other options in addition to just having the cash up front however. For example, you can use equity from your existing home, should you have enough there. You can get a home equity line of credit. It all depends how you want to handle it. You can have the buyer pay the costs on repaying your HELOC, or you can use a portion of the funds from the HELOC in combination with a mortgage. Upon sale or refinance of the home in 2-5 years the money loaned for the down payment can be paid back. The advantage here is that the repayment can be a very nominal amount. For instance if you take out $10,000 the monthly payments would be approximately $20.
Note: If you are considering the loan option, then the payment would have to be confirmed in writing and the amount included in the application as a monthly payment towards debt servicing to qualify for the mortgage. So this may work for some buyers and not for others depending on how close we are to the qualifying ratio maximums.
To fully understand how to qualify for a mortgage and the pros and cons of helping your children buy their first home, give us a call at 778 233 2377 or email us at [email protected]
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