Can I Help My Child Buy Their First Home? Sharing a Mortgage in 2021
First time homebuyers are experiencing one of the most legendary housing markets in existence right now.
If you’re in the market to sell your home, this could very well be the best time to do so! However, if you’re trying to buy a home, the narrative changes instantly.
The price of homeownership is no longer comparable to even a decade ago! Not only are houses going over asking, leaving anxious first time homebuyers with stacks of declined offers, but the initial asking price in itself is quite intimidating.
You can imagine how difficult this must be for our younger generation. With the financial demands of school loans and a sheer lack of savings, it’s no wonder there’s a considerable struggle for first time homebuyers. Add the peaking housing market and skyrocketing asking prices to the list and the opportunity for homeownership becomes almost nonexistent for these young people.
Is there a way for parents to help their child purchase their first home, without going into debt themselves?
What’s involved in giving your child a boost towards homeownership?
As parents, we want to see our children succeed. To reach their goals and even to reach the goals that we had at their age. And it’s only natural for us to want to support their ambitions in the best way we can.
In order to help our children make that first step into the real estate market, there are two strategies to choose from:
- Gifted Down Payment – You sign a letter for the lender stating the funds are a gift and are not required to be paid back at any time.
- Co-signing the Mortgage – You assume a shared legal responsibility, agreeing to repay the mortgage if your child is unable to do so.
But before making the decision to give or co-sign, it’s important to consider what this financial commitment might mean for your own financial wellbeing, your family dynamic, your child’s level of commitment and the long-term effects of the agreement.
4 Tips To Sharing a Mortgage With Your Child
Supporting your child’s homeownership dreams and giving them a leg up in the current housing market is a beautiful and compassionate objective, but is it a realistic one?
1. Don’t Forget About Your Own Financial Responsibilities and Constraints.
The first consideration you should have when debating whether to support your child financially is to ensure that your own finances aren’t going to take a hit. After all, your first responsibility is to your own financial security.
Consider what kind of help you can realistically afford without creating financial stress or tension in your own life.
For example, if you loan the money and it is never repaid, will it affect your own financial security?
Can you afford to give the money, and if so, how much?
Ensuring that you are stable in your own finances is not only necessary right now, but down the road it could potentially save your child the money it would take to support you in the future (ie. nursing home care, medical bills etc.)
2. Consider Family Dynamics.
Family dynamics are incredibly important to consider as well, if you are considering aiding in financial support. Why? Because this large gift (whether being repaid or not) could create tension, jealousy or even rivalry between other family members who did not get that same support.
Consider these questions:
- Are there other siblings or other family members to consider?
- Will there be an issue of fairness that you need to manage?
3. Ensure That Your Child Understand The Extent Of This Financial Responsibility.
Homeownership involves more than just a monthly mortgage payment. There’s heat, hydro, insurance, cable, internet, taxes, and of course the repairs and upkeep.
Owning a house is an incredible achievement, but it is also a large responsibility.
Before you offer your child financial support, consider whether they’re ready for the financial responsibility of owning a house. You might be able to help them pay the initial down payment or mortgage, but can they support the rest?
4. Consider Property Law If Your Child is Sharing The Home With a Partner.
Does your child share, or plan on sharing, their home with a partner? If so, there are some protections that need to be put in place.
For example, should your child’s relationship end, you may discover that 50% of the money you put into the house investment goes completely to your child’s partner as part of a settlement agreement.
If this is a concern for you, be sure to get in touch with a real estate lawyer in order to discuss what protections you may be able to put in place before funding.
Get In Touch With our Mortgage Experts In Quinte and Peterborough
Your child is preparing to embark on an important financial journey and you want to do your best to help get them on the right path.
The best place to begin? With sound, expert advice!
Does your child want to begin their first time homebuyers adventure someday? Help them now by teaching them to make healthy financial habits early on. Have them get in touch with The House Team for access to the best mortgage rates and clear-eyed, common-sense advice - the earlier the better!
Our team is here to connect you with the right lenders for your first time homebuyers mortgage needs.