IF YOU REQUIRE PARENTAL HELP TO GET INTO THE HOUSING MARKET, DON’T WORRY… YOU’RE NOT ALONE!

Many first time buyers need assistance of some kind. But what are the options for that help?

There are 3 main options for your parents to help.

They gift the funds, either for the downpayment or an amount of the purchase price.

They ‘guarantee’ the mortgage. Meaning you use their financial standing to obtain the mortgage.

They buy the property, go on title to the property and you figure out a repayment method (if desired) so there are no surprises on either side. 

But what are the pros and cons of these routes?

Let’s break down the pros and cons of each option for a first-time homebuyer in BC, Canada, when it comes to involving parents in the purchase:

Parents Gifting Funds with the First-Time Buyer on Title:

Pros:

No Ongoing Obligation: The parents provide a one-time gift, and there are no ongoing financial obligations for the first-time buyer.

Ownership Control: The first-time buyer has full ownership of the property.

Cons:

Potential Tax Implications: There could be tax implications for the parents, depending on the gift amount and applicable tax laws.

No Recourse for Parents: If the first-time buyer faces financial difficulties, the parents have no claim to the property.

Applicable Risks:

Parental Financial Risk: If the parents gift a substantial amount and face financial issues in the future, they can’t easily get their money back.

2. Parents Being Guarantors:

Pros:

Help with Approval: The guarantor’s good credit and financial stability can help the first-time buyer qualify for a mortgage.

Cons:

Ongoing Responsibility: The parents are responsible for the mortgage if the first-time buyer can’t make payments, which can strain the parent’s finances.

Credit Risk: If the first-time buyer defaults, it may negatively affect the parent’s credit score.

Applicable Risks:

Financial Strain: Parents may need to make mortgage payments, impacting their own financial well-being.

3. Parents Going on Title with the Kids Paying Them Back:

Pros:

Shared Ownership: Parents and first-time buyer share ownership, and it’s clear how the money will be paid back.

Potential for Income Splitting: Income generated from the property can be shared between parents and the first-time buyer.

Cons:

Complex Arrangement: This involves legal agreements, and it can be complicated to determine the payback terms.

Possible Tax Implications: Tax implications for both parties need to be considered.

Applicable Risks:

Disputes: Disagreements may arise on property use, expenses, or payback terms.

Parental Control: Parents have a say in the property’s use and sale.

In simple terms, gifting the funds is straightforward, but there might be tax considerations, and the parents won’t have any ownership or control over the property. Being guarantors helps with mortgage approval but puts financial responsibility on the parents. If parents go on title and are paid back, it’s more complex but ensures shared ownership.

It’s essential to consult with a legal and financial advisor to understand the specific implications, responsibilities, and risks associated with each option before making a decision.

I can help point you in the right direction to get you started on your home buying journey. Give me a call, or shoot me a text/email. I’m here to help guide you.

604 902 4260

richard@richardgrenfell.com