With the ever-increasing sale prices of homes lately, the number one comment we are hearing from people is; “How will our children ever be able to afford a home?” This is an excellent question. We are really not excited of the prospect of our kids living with us until they are aged 40! We here at The Mullin Group, are all just recently experiencing the empty nest syndrome…and frankly, we kind of like it!!!
So as parents what can we do to ensure we see our children living the Canadian dream of Home Ownership instead living with us for years and years and years or worse, paying exorbitant amounts of rent (helping some landlord achieve his financial dreams!)
First we should try to teach our children about financial literacy! This is not taught in school and something that we as parents may have failed ourselves, but as parents, let’s not let our children repeat our mistakes. Teach our children at a very young age about saving money and having a good credit rating. Encourage your young adults to get a credit card and use it, but as soon as they do, transfer the money to the credit card and pay it right away. This establishes a good credit rating and teaches them not to spend what they don’t have!
Investigate all options available to first time home buyers. There are programs in place to encourage home ownership like deduction in the land transfer tax, government programs as well as there are sometimes down payment assistance programs. Dufferin County assess each year if they can continue in the First Time Home Ownership Program where it can help first time home buyers in Dufferin County with their down payment (certain criteria must be met).
If we can help our children with their post-secondary education rather than taking a student loan, is ideal as well. There are tax savings for paying for education as well when they graduate they do not have such a large debt load for years to come. We have recently spoke to a lawyer who has been in practise for a few years and currently owns the firm, but has just recently paid his final OSAP loan payment. To be able to graduate with no debt (or very little) can greatly help your child when ready to buy a home as they will qualify for a larger mortgage.
Advise your children to start with a “starter” home. The millennials have a difficult time with this because they can’t imagine living in a home with fewer amenities than what we have created for them. This means buying a fixer upper or consider a bachelor condo apartment. Yes it does not have its own ensuite or gosh no 2 car garage but guess what….it’s all you can afford!!!
We are a generation that has spoiled our children and sometimes we are the ones that can’t imagine them living in these types of homes, but it creates a sense of pride, it teaches them how to ‘fix’ things up and the biggest benefit, it is creating equity. Starter homes will always have a demand so when the market keeps increasing and they have built up equity, they will be able to use that to move to a more modest home. The expectation to start in a brand new home with all the bells and whistles is not in their best interest. Buy what you can afford and look to move up when the time is right.
26% of first time buyers have received money as a gift from their parents. In Canada there is no tax implication for you or your child, unless you have to cash a RRSP or such. The only thing to be aware of is that if your child is getting married, and for some reason the marriage does not work out, that gift may be split has equity in the home. Negative thinking I know, but still the facts.
Another option is to offer your child a loan and set the interest and repayment schedule. With this option, you do have to declare the interest earned on your tax returns. Some parents opt to co-sign a loan with their child. You do have to be added to title. As well if you own a home, you will have to put down at least the 20% down payment because you will not qualify for an insured loan. You also will be legally responsible for the loan should your child default. This is only an option when you know your child is responsible enough and in a position to afford the property.
If you are in a financial position you may gift the property itself. You would still have tax implications with this as it would appear as if it were ‘sold’ to them and you would be responsible for the capital gains based on fair market value.
As we look at all our options, it still may be an idea to have your children live with you long enough to save money for a down payment. We have many friends that charge a ‘rent’ and just put it into a savings account to give back to their kids as a down payment on a home. These different times call for different measures, but we believe it is still possible for our kids to eventually move out and enjoy the freedoms and pride of owning their very own home.